Food Insecurity in Nicaragua

Food Insecurity in Nicaragua Nazia HabibMintz pairno1@ yahoo.com State University of New York at Plattsburgh http://www.plattsburgh.edu Food Insecurity in Nicaragua 26-Jan-04 1 Food Insecurity in Nicaragua Acknowledgments I would like to thank several people without whose invaluable help and efforts, this paper would have been impossible: Dr. Elgin Vivas and Guillermo Somarriba from the Universidad Nacional Agraria for hosting me in Nicaragua, coordinating interviews, and translating Spanish to English; Dr. Ellen Fitzpatrick, Dr. Deborah Altamirano, Dr. Neal Duffy, and Dr. Robert Christopherson of Plattsburgh State University for their guidance and reviews of this paper; Dr. David Mowry and Dr. Siamack Shojai from Plattsburgh State for facilitating space and resources to conduct this research; Cheryl Lafounde from Plattsburgh State’s library for providing interlibrary loan services and other facilities; and my husband Matthew MintzHabib for his loving support throughout this project. Also, I would like to give an extra recognition and thanks to the individuals in Nicaragua who gave time out of their busy schedules for my interviews. Special Note I would like to give a special thanks to the Institute of Latin American Studies Student Association (ILASSA) at the University of Texas at Austin for hosting this web publication after I attended the 24th Annual ILASSA Student Conference on Latin America. Under their publication guidelines, images may not be included in this document. In compliance with their guidelines, graphs were replaced with table data whenever possible, while other images were omitted altogether. Please contact me for a full version of the paper – graphs and images included. Disclaimer Any inaccuracies in the information presented are my own mistake. I would be happy to be notified of any such mistakes are discovered. 26-Jan-04 2 Food Insecurity in Nicaragua Table of Contents Introduction......................................................................................................... 6 Hypothesis: ..................................................................................................... 6 Background Information................................................................................ 7 Food Insecurity ................................................................................................... 7 Agriculture .......................................................................................................... 9 Agrarian Economy............................................................................................ 10 Organization.................................................................................................. 11 The History of Food Insecurity ........................................................................ 13 Zelaya’s Liberal Nationalist Agrarian Policy (1894-1909).......................... 16 Zelaya’s Revolutionary Plan............................................................................ 17 Land, Labor, and Credit ................................................................................... 18 The Effect of Zelaya’s Policies on the Food Sector......................................... 20 Somoza’s Agro-Capitalism (1937-1979)...................................................... 22 A Quick Overview of the Somoza Capitalist Economy................................. 23 Somoza’s Agrarian Reform Export Promotion Leading to Food Insecurity:26 Somoza’s Economic Model .............................................................................. 29 Impact of the Somoza Model: .......................................................................... 35 Sandinista’s Dream of Food Security (1979-1990)..................................... 38 Overview of The Economy .............................................................................. 39 Agrarian reform ................................................................................................ 45 Food Policy Practice...................................................................................... 48 Land ............................................................................................................. 49 Credit ................................................................................................................. 51 Redistribution.................................................................................................... 53 Food Security Under Structural Adjustment .................................................. 57 Brief Theoretical Foundations of Structural Adjustment.......................... 60 Necessity of Structural Adjustment in Nicaragua ..................................... 64 Agriculture under Structural Adjustment:.................................................. 66 Land Tenure and Reform under SAP ............................................................. 68 Credit Structure................................................................................................. 70 26-Jan-04 3 Food Insecurity in Nicaragua Introduction Technical Assistance......................................................................................... 75 Policy Recommendations ............................................................................ 81 A Few Suggestions............................................................................................ 82 Conclusion ........................................................................................................ 91 Works Cited....................................................................................................... 94 26-Jan-04 4 Food Insecurity in Nicaragua Table of Figures Figure 1: Per Capita Real GDP, 1960-1990, in 1980 Córdobas...................................... 23 Figure 2: Cotton and Coffee Exports, Percent of Total .................................................. 26 Figure 3: Macroregions of Nicargua.............................................................................. 30 Figure 4: Percentage of Area Harvested ........................................................................ 30 Figure 5: Employment in Cotton Production, Permanent and Temporary, 1960/611978/79 ................................................................................................................. 34 Figure 6: Per Capita RGDP 1977-1993 ......................................................................... 41 Figure 7: Trade Deficit.................................................................................................. 42 Figure 8: Aid by Source ................................................................................................ 44 Figure 9: Land Distribution, 1963-2001 ........................................................................ 69 Figure 10: Coffee Price vs Coffee Production ............................................................... 72 Figure 11: Rice Credit Vs Production............................................................................ 73 Figure 12: Bean Credit vs Bean Production................................................................... 74 Figure 13: Corn Credit vs Corn Production ................................................................... 74 Figure 14: Number Of Farm That Use Traditional And Non Traditional Technology To Produce ................................................................................................................. 77 Figure 15: Basic Grains Growth Rates .......................................................................... 79 Table of Tables Table 1: Fiscal Deficit................................................................................................... 24 Table 2: Land Distribution According to Size of Finca, 1963........................................ 32 Table 3: Distribution of Income in 1977 and Caloric Intake in 1970.............................. 35 Table 4: Intraregional Trade and Nicaragua’s Shares of Intraregional Trade, 1976-198243 Table 5: Evolution of Food Imports, 1978-1984............................................................ 47 Table 6: Changes in Land ownership, 1978-1988 .......................................................... 49 Table 7: Distribution of New Credit by Size of Producer - Rural Credit Program .......... 52 Table 8: Per Capita Consumption, 1972-1984 ............................................................... 54 Table 9: Annual Percentage Increase in "General" and "Food, Beverages, and Tobacco" Price Index, 1981-1985a ........................................................................................ 55 Table 10: Agro-Exports: Area Harvested, Area Financed, and Cordoba Financed ......... 71 Table 11: Basic Grains: Area Harvested, Area Financed, and Cordoba Financed........... 71 Table 12: Short and Long Term Agricultural Credit in Millions of Cordobas ................ 74 Table 13: Number of Farms Receiving Technical Assistance 2000-2001....................... 76 26-Jan-04 5 Food Insecurity in Nicaragua Introduction Introduction “The critical question that we should address is: How is it that the government, with all the policy instruments it has at its disposal, is still unable to reach its food policy goals?” Government food policy analyst, Nicaragua 19871 Hypothesis: The absence of a true national food policy in Nicaragua and the increasing reliance on imported food to meet domestic demand has resulted in chronic food deficits among the poorer populations and undermined the ability of the agricultural sector to contribute to the development process. Heavy reliance on food imports is a mistake for Nicaragua with the economic characteristics of high debt (both domestic and current account debt), scarce foreign exchange problems, dependence on the export of a primary product for both tax revenues and incomes in the sector, and reliance on a thin international market for the basic imported food staple. Food imports rise whenever domestic food supplies are lower than demand, whereas poverty and malnutrition are traced back to a lack of purchasing power among certain vulnerable groups in the population. A vital food sector is not only a source of 1 Brizio N. Biondi-Morra, Hungry Dreams: The Failure of Food Policy in Revolutionary Nicaragua, 19791990 (Ithaca: Cornell University, 1993), 1. 26-Jan-04 6 Food Insecurity in Nicaragua Introduction sustenance but also a source of income for the numerous smallholder producers who form the most important group exposed to the risk of hunger. Without vital food production in the rural areas, there will be no development of the backward and forward linkages that would stimulate more broad-based economic growth and enhance the distribution of income within rural communities. In the past, farmers were able to compensate for crop losses through employment in the coffee sector.2 This option is no longer available. International coffee prices fell more that 60 percent in the last 18 months, drying up this source of employment – as well as Nicaragua’s most important source of export earnings. To further exacerbate the problem, bank failures and a $500 million government bailout diverted funds that could have been used for poverty alleviation programs, and led to the evaporation of credit, particularly for the agricultural sector.3 Background Information Food Insecurity There is a significant percentage of the rural and urban poor in Nicaragua who suffer from persistent, chronic under-nutrition. This is largely because there is an insufficient supply of locally produced food and because of the decreasing or stagnant real income of the poor. Nicaragua has the highest malnutrition rate in 2 Nicaraguan coffee production has traditionally employed nearly 200,000 people, roughly 30 percent of the agricultural workforce. 3 USAID, “Program Data Sheet” (2003). 26-Jan-04 7 Food Insecurity in Nicaragua Introduction Latin America, 31% of which is due to poverty.4 While rice production has increased 638%, rice imports have increased 965% between the years 1961 and 2000.5 Based on the basic food consumption and availability, Nicaragua suffers from food insecurity.6 In general, food insecurity ranges from mild to severe. Households with uncertain food supplies that affect what and how adults eat suffer from mild food insecurity. Households where the children go hungry suffer from severe food insecurity.7 Based on Nicaragua’s child malnutrition level, Nicaragua experiences severe food insecurity.8 In an incomplete economy like Nicaragua, as described by Laura Enríquez, one sector predominates in the accumulation of capital, which is a precondition for development. In Nicaragua, primary goods are the predominant sector – in the form of export crop production.9 The basic grains discussed in this paper are rice, beans, and corn, while the export crops discussed are coffee, cotton, and sugar. Historically, Nicaragua depends heavily on its comparative advantage in coffee and cotton production for its foreign earning, which makes 4 5 Thorp, 1998 Ibid. 6 Food security means access to a recommended minimum diet, calculated by age and sex, and amounting to a daily average per capita food intake of 2,242 calories and 70 gram of protein plus vitamins and minerals. Seen in Biondi-Morra, Hungry Dreams, 32. Food insecurity exists when people are undernourished as a result of the physical unavailability of food, their lack of social or economic access to adequate food, and/or inadequate food utilization. FIVIMS, What is Meant by Food Insecurity and Vulnerability? http://www.fivims.net/static.jspx?lang=en&page=overview . 7 “Cornell Studies Find Women in Food-Insecure Homes Engage in More Binge Eating and Eat Fewer Fruits and Vegetables,” Cornell University Science News (18 June 1997), http://www.news.cornell.edu/ . 8 One of every three children has some degree of chronic malnutrition and nine per cent suffer from severe malnutrition. UNICEF, “At a Glance: Nicaragua,” http://www.unicef.org/infobycountry/nicaragua.html . 9 Laura Enríquez, Harvesting Change: Labor and Agrarian Reform in Nicaragua 1979-1990 (Chapel Hill: The University of North Carolina Press, 1991), 4. 26-Jan-04 8 Food Insecurity in Nicaragua Introduction the economy vulnerable to export-crop price changes in the global market. This point is discussed in further detail later. Agriculture Primary goods production has largely taken the form of agro-export production, which received the highest attention from the government, policymakers, financers and foreign investors. Meanwhile, food production remained marginal. The agro-export sector dominated domestic competition for essential inputs like land, labor, credit, and technical assistance marginalizing the basic grain market. Domestic food production has been unable to meet demand, and Nicaragua has increasingly relied on imports of food. At present, Nicaragua imports one third of its basic foods.10 The disincentive to invest in the food sector led to stagnant production levels that have not kept pace with increasing demand. A lack of productivity in the sector has made it difficult to generate surpluses (savings) in the rural communities for investment either directly in the agricultural sector or in human capital. Shifts in consumption patterns towards import-sensitive food baskets tend to lower the prices of traditional, locally produced staple goods, further reducing the incentive to invest in rural food producing capacity. On the macroeconomic side, a rising food import bill may also constrain agricultural growth as the scarcity of foreign exchange limits the government’s ability to finance imported inputs and capital goods for the agricultural sector. Therefore, 10 Interview with MAGFOR in August 2003, given in El Desarrollo Humano en Nicaragua, 2000, 170 26-Jan-04 9 Food Insecurity in Nicaragua Introduction despite a wealth of natural resource endowments11, Nicaragua cannot raise 50% of its population out of chronic under-nutrition. Agrarian Economy Nicaragua’s formerly mixed economy is undergoing extensive marketoriented structural adjustments programs (SAPs), mainly by means of privatization of state enterprises and downsizing of the public sector. Restoration of economic stability and reconstruction after eight years of civil war are major concerns. The structural adjustments Nicaragua made after the civil war turned Nicaragua from an agrarian based economy to an export promotion based economy. Nicaragua began free market reforms in 1991 after 12 years of economic depression, uncontrollable inflation, and high external debt under the Sandinista regime. Despite some setbacks, it has made dramatic progress: privatizing more than 350 state enterprises, reducing inflation from 13,500 percent to 8 percent, and cutting the foreign debt in half. The economy began expanding in 1994 and grew 2.5 percent in 2001, with overall GDP reaching $2.44 million in 2001.12 The agriculture sector officially employs about 42 percent of the work force13. Production is heavily oriented toward exports of coffee and cotton, which generate about half of total export revenues; bananas, sugar, tobacco, sesame, 11 Nicaragua has an endowment of natural resources - tropical weather and fertile land that could stimulate the development of a strong agricultural sector. 12 GeographyIQ, “Nicaragua – Economy (Notes),” http://www.geographyiq.com/countries/nu/Nicaragua_economy_summary.htm 13 CIA, World Factbook, Nicaragua, http://www.cia.gov/cia/publications/factbook/geos/nu.html . 26-Jan-04 10 Food Insecurity in Nicaragua Introduction rice, and beef are also important export commodities. Approximately 80 percent of agricultural production is controlled by private sector operations engaged in export crop production.14 A shallow credit market for small landowners and no public policy for agriculture led to an unfortunate dependency model to feed the national people. Organization This paper focuses on Nicaragua’s development strategies over the last century and their effect on food security using micro-macro economic analysis. Food security’s macro policies are very closely related with micro economic conditions, so for simplicity’s sake, this paper observes the overall implications on the food system and basic grain production. An attempt is made to identify supply and demand side of the food system, but in many cases the agent of these sides are the same subsistence farmers. The first section discusses the history of food insecurity from 1884 to 1990 by examining the socioeconomic changes represented by three influential government eras: Zelaya (1894-1909), Somoza (1937-1979), and Sandinista (1979-1990). Their economic policies cumulatively created an insecure situation for the food producers. Each of their development strategies significantly affected basic grain production by emphasizing commercial crops, especially coffee and cotton, during each of their time as means to gain economic growth. Production and labor productivity dropped as export crop production received political and 14 This was a Discover Real Estate Ibid. 26-Jan-04 11 Food Insecurity in Nicaragua Introduction economic attention in the form of land, labor, credit, and technical assistance, at the expense of basic food production. The second section focuses on the structural adjustment programs (SAPs) that follow virtually the same economic strategy to accelerate the economy by promoting agro-export production. This section discusses the effect contemporary structural adjustment (SA) on basic grain production and the availability of food for the poor. Under SAP’s capitalism and free market economics, Nicaragua depends on imports and donations to meet the food demand. Due to limited research available and inadequate data series, it was very difficult to delineate with any precision why and how macro polices were designed. As Biondi-Morra explain, “they appear to have been motivated by a varying assortment of impulses, including vague ideological predispositions, political calculations, attempts to remedy immediate problems, as well as sincere efforts to promote equitable development.”15 The paper concludes with a critical analysis of Nicaragua’s latest poverty reduction strategy with some suggestions to improve food security conditions. 15 Biondi-Morra, Hungry Dreams, 4. 26-Jan-04 12 Food Insecurity in Nicaragua The History of Food Insecurity The History of Food Insecurity The fundamental role of the farm sector is to guarantee adequate food supplies to the population: this is its top priority according to the Revolution. The goal is to achieve self-sufficiency in basic grains by 1990, and in other dietary components by the year 2000. -- Nicaraguan Ministry of Agriculture and Land Reform, 1983 Twenty years have passed and Nicaragua is still struggling to ensure food for all of its citizens and create a well-nourished, healthy society. According to 2002 World Bank estimates, nearly 30% of the Nicaraguan population receive less than minimum level of dietary energy consumption16. Furthermore, almost 50% of the population lives below the poverty line.17 Why has Nicaragua not achieved their goal of food self- sufficiency? Or, is it that Nicaragua was unable to pursue the policy? To answer these question ands understand the causes of the present condition, this paper will trace the roots of Nicaragua’s food insecurity by examining the historical relationships between economic development, agrarian reform, and food security initiatives. The outcomes of economic development are economic growth, meeting basic human needs, equitable distribution of income and economic and environmental sustainability. Agrarian reform was a principal policy tool to try to meet the multifold objectives of development. 16 17 The expected daily caloric consumption level is 2187. INEC, Diagnostico de Pobreza (2001). INEC, Diagnostico de Pobreza, and World Bank (2002). 26-Jan-04 13 Food Insecurity in Nicaragua The History of Food Insecurity Since the establishment of the Nicaraguan nation, the political agenda of many of the leaders has been to make the export of primary products the engine of growth for the economy. The government tended to favor the export sector as means to accelerate growth and increase foreign income. Consequently, food production for domestic consumption was not an integral component of economic growth strategies until the 80’s. When poverty is a reason for hunger, hunger becomes a reason for poverty. Hunger impairs an individual’s health and prevents them from being a productive resource to society. Widespread food insecurity impedes economic growth, as demonstrated by an Asian Bank study that shows a 2%-4% yearly reduction in GDP due to food insecurity.18 The FAO reports that people in developing countries working labor intensive jobs, such as agro-export production in Nicaragua, and who have smaller and slighter body frames caused by undernourshment, earn lower wages. 19 While each developing country has its own unique challenges and conditions, it is likely that rampant malnutrition rates in Nicaragua have similar effect on wages. The repeated restructuring of Nicaragua’s agricultural sector for export crop production over the last century led to disinvestments in the food production sector and a greatly diminished capacity to meet basic food requirements. Prior to the 1950’s, Nicaragua was completely self-sufficient in food grain 18 FAO, The State of Food Insecurity in the World: Summary (2002), ftp://ftp.fao.org/docrep/fao/005/y7352e/y7250e.pdf . 19 FAO, The State of Food Insecurity. 26-Jan-04 14 Food Insecurity in Nicaragua The History of Food Insecurity production.20 The many attempts to use export agriculture as an engine of growth led to the reallocation of land, labor, credit, technical assistance, and even knowledge of food grain cultivation, from food crop production to export crop production. Since Nicaragua’s economy is agriculturally based, the shift in resources was reciprocated by a corresponding shift in production. With an inadequate food production capacity, Nicaragua grew to become dependent on imported food and food aid. Since imported food products are too costly for Nicaragua’s impoverished populace, and food aid is unreliable (and often lowers prices received by the domestic producers for food), Nicaragua suffers from increasing food insecurity. This chapter will review the agrarian policies and their implications, of the three representative Nicaraguan governments from 1893 to 1990. The selections include the governments of José Santos Zelaya (1893-1909), Somoza dynasty (1937-1979), and Sandinista (1979-1990), all three of which significantly shaped Nicaragua’s economy.21 The Zelaya and Somoza governments pioneered agroexports as a means for economic development, while the Sandinista government’s struggle to build a mixed economy ended with disastrous results. 20 Laura Enríquez, Harvesting Change: Labor and Agrarian Reform in Nicaragua 1979-1990 (Chapel Hill: The University of North Carolina Press, 1991), 46. 21 Jeffrey M. Paige, Coffee and Power: Revolution and the Rise of Democracy in Central America (Cambridge, MA: Harvard University Press, 1998). 26-Jan-04 15 Food Insecurity in Nicaragua The History of Food Insecurity Zelaya’s Liberal Nationalist Agrarian Policy (1894-1909) During Zelaya’s rule (1894-1909), Nicaragua’s economy turned to the international market and agro-exports as a way to ‘modernize’ the economy and establish market capitalism.22 Zelaya pushed for market capitalism by supporting large agricultural companies that devoted land and labor resources to export crop production. This policy subsumed communal land, and peonized small farmers. These actions undermined small food producers, and in the long run, contributed to declining food production. High demand and high prices for coffee influenced the transformation of the proletarian economy into a capitalist economy and created a rising class of coffee producing bourgeoisie wielding concentrated economic power.23 As Zelaya restructured the nation’s economy around coffee production, land and labor resources shifted from the food production sector to the agro-export sector and domestic food production declined – a trend that would be repeated throughout the century. As domestic food production fell, dependence on imported food products to satisfy domestic consumption followed. 22 Market capitalism is a social economic system based on the complete set of decentralized markets to allocate scarce resources, goods, and services. 23 A decentralized market is when resource allocation occurs as a consequence of individual market transactions. 26-Jan-04 16 Food Insecurity in Nicaragua The History of Food Insecurity Zelaya’s Revolutionary Plan After the liberal revolution, Zelaya seized the opportunity to accelerate Nicaragua’s economic growth by entering into the international market.24 High prices for coffee’s and growing demand in the international market attracted the interest of the Nicaraguan government, which embraced coffee exports as the primary vehicle for the country’s economic growth.25 According to Torres, Zelaya’s government “…based its reformist actions on the strategy of converting Central America into an export region of primary products26 destined for the industrialized countries. It was believed by Zelaya and his supporters that a modern export oriented economy was the way to overcome chronic economic crises and stagnation.”27 To achieve this objective, Zelaya’s legislature invested much of the nation’s resources into coffee production, marking the beginning of mono-cropping in Nicaragua. As a new member of the global economy, Nicaragua’s elite coffee producers reacted to market price mechanism by adjusting coffee production and land allocations according to market signals. Nicaragua achieved an economy of scale in coffee production by opening new lands for production, facilitating cheap labor, and providing ample government support. This behavior demonstrated the rise of insipient market capitalism in Nicaragua’s agricultural based economy. 24 Liberal revolution means promoting the creation of an outward, competitive economy, linking with the international market. 25 According to Haarer, coffee was introduced to several of Central American republics in the mid to late 1700s. Nicaragua adopted it somewhat later. A. E. Haerer, Producción Modernerna de Café (Havana: Edición Recolucionaria, 1969), 29. Seen in Enriquez, Harvesting Change, 191. 26 Primary products are produced for exports to industries to make end-use products. 27 Edelberto Torres Rivas, Interpretación del Desarrollo Social Centroamericano (San José, Costa Rica: EDUCA, 1980), 51. Seen in Enríquez, Harvesting Change, 26. 26-Jan-04 17 Food Insecurity in Nicaragua The History of Food Insecurity Large landowners reinvested their profits in coffee production. This marked the rise of a new class of coffee producing elite who wielded unprecedented economic and political power. In Nicaragua, like other developing nations, the essence of economic power is in landownership, labor usage, and credit facility. Land, Labor, and Credit The institutionalization of coffee production during Zelaya’s rule initiated the structural transformation of the Nicaraguan economy. The groundwork Zelaya laid to promote agro-export production included the reorganization of landownership, the creation of a strong labor force, and the economic incentives to increase coffee production. Zelaya’s objective was to increase foreign earnings for the development of economic infrastructure. 28 New legislation succeeded in expanding Nicaragua’s coffee production to capture a significant share of the international coffee market, making the country the eleventh largest coffee exporter in the world. Under this new set of property rights, communal lands traditionally used for subsistence farming, were opened up for coffee production.29 The beneficiaries were primarily a small group of elite coffee producing families. In all, Zelaya transferred some 1,300,000 hectares of land to 28 29 Enriquez, L, Harvesting Change 1998 A study conducted for the U.S. State Departmnet in 1928, Cumberland (1980:21) argued that native population was one of the biggest barrier of coffee expansion. They were very tied with the lands and insisted on returning to it for a part of each year. Yet it was those small pieces of land that provided with the survival of campesino (small producer). The latifundo/minifundios relationship was a central part of coffee production. 26-Jan-04 18 Food Insecurity in Nicaragua The History of Food Insecurity around 30 elite families. Fifty years later, those lands still constituted a third of all agricultural land in Nicaragua.30 Meanwhile, thousands of peasant families were left landless, with very few options to support their families, and little choice but to work the coffee farms as wage labor. During this time one option for these displaced farmers was to move further into the agricultural frontier, which was difficult since they would have had to farm with little or no supporting infrastructure. The alternative was to move to the city center and face underemployment. Thus, small farmers were marginalized from food production and forced into supporting the liberalized coffee sector. To avoid potential labor constraints during planting and harvesting, Zelaya provided coffee producers needed labor through two means.31 One means to ensure an adequate supply of labor was initiating harsh labor codes.32 Under Zelaya’s legislation, the labor force had three options: 1. Join the military; 2. Work on a public project; or 3. Work in coffee production. The other means Zelaya provided coffee growers their labor was by recruiting a special agriculture guard force that ensured wage laborers worked in coffee production.33 These policies, which tied the population to a seasonal work cycle, exacerbated seasonal 30 31 Jeffrey Paige, Coffee and Power (Cambridge, Massachusetts: Harvard University Press, 1998), 157. W. W. Cumberland, Nicaragua: Investiación Económica y Financiera (Managua: Colección Cultural, Banco de América, 1980). Seen in Enríquez, Harvesting Change, 29-30. 32 1894 law giving agricultural ‘judges’ the right to force any one over 14 to work, 1898 law established ‘Libretas de Obreros’ (worker passes) and 1899 ‘Ley de los Vagos’ (Vagrancy Law). Jaime Biderman “Class Structure, the State and Capitalist Development in Nicaraguan Agriculture,” Ph.D. dissertation, University of California, Berkeley, 54. Seen in Enríquez, Harvesting Change, 30. 33 Paige, Coffee and Power, 157. 26-Jan-04 19 Food Insecurity in Nicaragua The History of Food Insecurity unemployment. The seeds of unequal income distribution and inadequate domestic food supply hammered the unavoidable future of food insecurity. The Effect of Zelaya’s Policies on the Food Sector Zelaya’s government offered incentives for small farmers to produce coffee, such as cash or credit, subsidies and free shipment on government controlled railroad.34 Many farmers took advantage of the opportunity and shifted from food production to coffee production, though with little knowledge of modern coffee production techniques. The farmers were then left to the vagaries of the international market, as well as the cycles of the large coffee producing countries. This move to export production subjected small farmers to radical vacillations in the prices they received.35 The government did little to address this problem of price and therefore income volatility for the small former. In addition, technical assistance to enhance productivity and quality was not available and many farmers had difficulty marketing their products internationally. Until the late 70’s these small farmers did not market their product collectively and so they were further exploited by the coffee elite’s monopolistic control over the international marketing of coffee. Since the domestic market failed to promote income, the ultimate impact was levied on food consumption of these farmers. A lack of technical expertise and unstable prices led small coffee farmers to produce smaller crops of poorer quality which then sold at a lower prices. 34 David R Redell, Historical Geography of Western Nicaragua: Spheres of Influence of Leon, Granada and Managua 1519-1965. Seen in Enríquez, Harvesting Change. 35 For example, Nicaraguan farmers received a higher price for coffee if Columbia and Brazil had a bad harvest. 26-Jan-04 20 Food Insecurity in Nicaragua The History of Food Insecurity Some small producers were unable to make ends meet and were forced to sell their land, and join the wage labor force. This prolitarianization of small farmers was common throughout the third world as those with economic power solidified their control of land. As farmers lost their land they lost their ability to augment household income with food. Seasonal employment, and uncertain income increased their vulnerability and also made them more dependent on an volatile international market without the safety net of subsistence production. Without a stable income, much of the population lacked the funds to buy food, and was unable to grow food crops since they were working in coffee production. Families then failed to meet basic nutritional requirements and the incidence of malnutrition soared. For producers who had the resources to make it, coffee production was a much more attractive endeavor than food production, and land was allocated accordingly. Land tenure then played a crucial role in decreasing food production, as much of the land was allocated for coffee production.36 A lack of enough fertile land and the absence of food production incentives contributed to an inadequate level of food production in Nicaragua. The result was an increased dependency on imported food products to meet domestic demand. Ultimately, Zelaya promoted the agro-export community by the expansion of the elite class and the mobilization of much of the population as a dependent labor force. His land reform policies produced a large labor force for the coffee elites, marginalized the food grain producers, and reduced amount of land for 36 Exact figures for the percentage of acreage allocated for coffee production are not available. 26-Jan-04 21 Food Insecurity in Nicaragua The History of Food Insecurity food production. Zelaya’s aggressive agrarian policy formulated mono-crop export agriculture by large, landed estates requiring a dependent pool of wage labor. This new agrarian structure exacerbated income inequality and unemployment, decreased food crop production, and set the stage for chronic malnutrition, declining health among much of the population. These features remain characteristic of twenty-first century Nicaraguan agriculture. Somoza’s Agro-Capitalism (1937-1979) Somoza was a corrupt dictator who ruled with a capitalist philosophy. From father, to son, to brother, the Somoza family played a central role in the nascent industrial sector and export-based agriculture, building an immense fortune for their family in the process. For the purpose of this chapter, “Somoza” will refer to the family’s rule from 1937-1979. By the end of the Somoza rule, Nicaragua experienced favorable economic growth, but food production declined to such levels that more than 50% people suffered from food insecurity. The economic growth in GDP driven by agro-capitalism masked the reciprocal decline of food production and food distribution. It is essential to remember that Somoza’s rule was not that of a republic, but a despotic family legacy. Political parties existed only in name and were frequently manipulated by Somoza to maintain the appearance of democracy.37 The United States also played an influential role in Nicaragua’s development 37 John Weeks, “The Mixed Economy in Nicaragua: The Economic Battlefield,” in The Political Economy of Revolutionary Nicaragua, ed. Rose J. Spalding (Boston: Allen & Unwin, 1987). 26-Jan-04 22 Food Insecurity in Nicaragua The History of Food Insecurity during Somoza’s time, as well as the during the Sandinista rule and into today through structural adjustment programs (SAPs). The latter two time periods will be discussed in upcoming sections, though a full discussion of the United States’ influence on Nicaragua is beyond the scope of this paper. Essentially, Somoza reinforced the prevailing class structure created through historical agro-export production by supporting and expanding Nicaragua’s comparative advantage in agro-export crops, like coffee and cotton, at the expense of food production. A Quick Overview of the Somoza Capitalist Economy Nicaragua’s economy was broadly capitalistic during the Somoza era. Between 1960 and 1977, real economic output nearly tripled. During 1960’s, the economy grew at a rate of 8.7%, but slowed to 5.5% in 1970.38 Then the 1972 Earthquake struck, momentarily slowing the economy, which rebounded with the help of foreign aid and loans. Figure 1 below shows the broad economic indicator, per capita RGDP, in 1980 córdobas, demonstrating the cyclical swing characteristic of capitalist economies. Figure 1: Per Capita Real GDP, 1960-1990, in 1980 Córdobas (Figure removed for ILASSA publication) Sources: Calculated from RDGP and Population, BCN. Seen in Gibson, “Overview of the Nicaraguan Economy,” 24. 38 International Monetary Fund, International Financial Statistics (Washington, DC: IMF 1981), 365. Seen in Bill Gibson, “Overview of the Nicaraguan Economy,” in The Political Economy of Revolutionary Nicaragua, ed. Rose J. Spalding (Boston: Allen & Unwin, 1987), 24. 26-Jan-04 23 Food Insecurity in Nicaragua The History of Food Insecurity According to Bill Gibson in his article Overview of the Nicaraguan Economy, the changes in RGDP’s rate of growth follow the pattern of fluctuating foreign investment.39 Note that foreign investment provided more capital growth to the Nicaraguan economy than domestic banks. A suitable environment for capitalism was stimulated by 14.9% of total investment coming from foreign sources from 1950 to 1959, which increased to about 30% from 1960 to 1977. Public sector investment remained small, averaging 3.8% and 5.6%, over the same respective time periods.40 The heavy reliance on foreign funds influenced statewide policies through investment restriction placed by the investors, excluding investment in basic grain production or domestic development programs. With such a significant influence, foreign investment heavily influenced Nicaragua’s economy. By the end of the 1970s, foreign debt exceeded US$ 1 billion, equal to 70% of Nicaragua’s GDP.41 Being so dependent on foreign investment kept government savings42 under 10% throughout most of the Somoza era.43 With so few cash reserves, Nicaragua’s economy was vulnerable to unexpected circumstances, such as the earthquake of 1972. The government depleted its savings recovering from the earthquake, and despite aid and loans, an estimated $518 million of capital left the country by 1974. A new period of increasing government deficit ushered in, as seen in Table 1, stimulating the revolution. Table 1: Fiscal Deficit 1953-1957 1958-1962 1968-1972 1973-1977 1980-1984 39 40 Gibson, “Overview of the Nicaraguan Economy,” 25. Ibid. 41 Rob Vos and Sarah Johansson, “Nicaragua,” Aid and Macroeconomic Performance, ed. Howard White (New York: St. Martin’s Press, 1998), 146. 42 Calculated as government revenue minus current government expenditure. 43 Gibson, “Overview of the Nicaraguan Economy,” 25. 26-Jan-04 24 Food Insecurity in Nicaragua The History of Food Insecurity Fiscal surplus/deficit +3.2 +2.0 +0.3 -2.1 -14.5 Source: 1952-1962: James Nugent, Economic Integration in Central America (Baltimore: John Hopkins University Press, 1974), 164-165; 1962-1977: Banco Central de Nicaragua, Indicador economícos, 37-38; 1980-1984: INIES, “Trece sintomas de un drama,” Pensamiento propio 21 (March, 1985): 29. Seen in Bill Gibson, “Overview,” 27. While coffee and cotton enjoyed relatively high prices and market demand during the Somoza era, not much of the profits went into the fiscal budget. Rather, the profit was used to finance the expansion of agrarian capitalism.44 This feature of the Nicaraguan economy was subtly masked by the impressive GDP figures during the Somoza era to disastrous effect. The neo-classical capitalist theory of income trickling down through society didn’t hold true in Nicaragua, because the neoclassical approach was created through Somoza’s corruption and dictatorship. Top 5% enjoyed 28% income and bottom 50% shared only 15% of income.45 In a nutshell, Somoza was able to sustain aggregate growth from the 1950s to the 1970s because of high growth in export agriculture. To sustain the economic growth, Somoza undertook agrarian reform that promoted export crop rather than food production.46 Malnutrition doubled from 1965 to 1975, affecting 60% of children under 4 years of age47 while more than three-fifths of the rural population had deficient food intake in 1970.48 Undoubtedly, Somoza’s crony capitalism that caused sever poverty in the among majority (50%)of the 44 45 Ibid. Gibson , “Overview,” 31. 46 Gibson , “Overview,” 30. 47 CEPAL, Informe Sobre Nicaragua (CEPAL, 1980), 6. Seen in World Bank, The Challenge of Reconstruction, 32. 48 World Bank, The Challenge, 32. 26-Jan-04 25 Food Insecurity in Nicaragua The History of Food Insecurity population. Such inequality undermined agrarian reform policies to cause severe food insecurity. Somoza’s Agrarian Reform Export Promotion Leading to Food Insecurity: In general, Nicaragua’s agro-export-based economy was common in Latin America, though Somoza rule brought a unique dynamic to the political and economic environment.49 With the exception of its brief experience in the Central American Common Market (CACM), Somoza era Nicaragua was a textbook example of how comparative advantage can increase GDP. Investment in the public sector was limited to road-building, irrigation, and other projects that benefited the agro-export sector. Much like Zelaya’s policies, subsidies for exports received high attention in the Somoza era, and included subsidies for production, processing, transportation, storage, and marketing. Somaza’s policies reinforced the export model’s inherent tendency to rapidly and aggressively concentrate resources into the hands of an elite few. Agro-export production was supported at the expense of food crop production, which lacked essential resources like land, labor, and credit, much like during the Zelaya era, except to a greater extent. The magnitude of agro-exports’ role in Nicaragua’s economy can be seen in Figure 2. Figure 2: Cotton and Coffee Exports, Percent of Total (Figure removed for ILASSA publication) 49 Richard Millet, Guardians of the Dynasty (Maryknoll, NY: Orbis, 1978). 26-Jan-04 26 Food Insecurity in Nicaragua The History of Food Insecurity Sources: 1954-59, DGE; 1961, Resumen Estadística (Managua: DGE, 2nd. ed., 1961), 90; 1960-79, BCN, Indicadores Económicos, nos. 1 and 2 (December 1979), 75, 82; 1980-83, Wheelock, Entre la Crisis y la Agresión: La Reforma Agraria Sandinista (Mangua: Communicaciones, MIDINRA, 1984), 144; 1984, CIERA, Informe Annual de 1984 (Managua: CIERA, 1985), 83. Note: cotton seed and instant coffee included. Seen in Gibson, “Overview,” 19. Land holdings concentrated rapidly during Somoza’s time, transforming the peasantry into wage laborers to ensure sufficient labor for agro-export production. Somoza pushed the peasants off their land, relocating the people to the agrarian frontier, devoid of state support. In 1978, 37% of the rural economically active population was landless, almost half of which could not find permanent employment.50 Peasants were bought out, and sometime forcibly evicted form the land by the National Guard, to comply with the emerging landed aristocracy.51 The best and the most accessible land went to export crop producers rather than producing food for domestic consumption. The proportion of land held by large commercial farms (holding greater than 500 manzanas) increased from 40% to 48% from 1052 to 1978, where as holdings from 10 to 99 manzanas declined 14% and the proportion less than 10 manzanas decreased nearly by half.52 The reduction in the peasant population, the nations primary food producers, contributed to the decrease in basic grain production. The affect of depeasantization on food production was more pronounced during the Somoza government than during that of the Zelaya government. This is because during the Zelaya era, the main agro-export crop was coffee, the 50 Carmen Diana Deere, Peter Marchetti, and Nola Reinhardt, “Peasantry and Development of Sandinista Agrarian Policy 1979-1984,” Latin America Research Review 20, no. 3 (1985), 78. 51 Gibson, “Overview,” 20. 52 Solon Barraclough, A Preliminary Analysis of the Nicaraguan Food System (Geneva: United Nations Research Institute for Social Development, 1982), 52. 26-Jan-04 27 Food Insecurity in Nicaragua The History of Food Insecurity production of which supported basic grain production as a secondary crop. However, cotton production came to the forefront during the Somoza era, which did not facilitate secondary crop production.53 At least for the case of cotton, export expansion was land extensive rather than intensive.54 So, cotton production overtook most of the fertile land along the pacific plain. Food production for domestic production declined to the point that rural Nicaraguans were largely unfed. Foreign earning and investment were allocated for Somoza and his associates’ benefit, leaving almost 50% of the population under the poverty line. Other factors influenced the stagnating domestic food crop production. One of which is that Somoza followed a “cheap food” policy that forced peasants to work during agro-export harvest times to supplement their nominal incomes. Somoza put such a low price ceiling on basic grain that production stagnated.55 Terms of trade consistently created domestic agriculture prices that ran below the world market.56 Stopgap imports were brought in to satisfy the basic food grain deficit that resulted from decreased domestic production. Finally, the small producers, who produced the majority of domestic food crops, were completely denied from access to domestic market. During Zelaya era domestic basic grain market were endangered, and Somoza destroyed it by marginalizing economic resources for small farmers and 53 54 Enríquez, Harvesting Change, 28-32. The reasons why cotton is land extensive are discussed in Gibson, “Overview,” 21. 55 Banco Central, Indicators 1979-1980. These maxima were reached in the 1973-74 season due in part to the earthquake of the preceding year. Seen in Gibson, “Overview of Nicaraguan Economy,” 20. 56 Solon Barraclough, A Preliminary Analysis of the Nicaraguan Food System (Geneva: United Nations Research Institute for Social Development, 1982), 38. Seen in Gibson, “Overview,” 21. 26-Jan-04 28 Food Insecurity in Nicaragua The History of Food Insecurity flooding the market with imported cheap food. As Gibson notes, “Generally Somoza’s development policies were palliative, with limited coverage; they were cynically designed to undermine insurgent activity in the countryside.”57 Somoza’s Economic Model In the preceding discussion, we established that intensive agro-export production encroached upon land previously devoted to food crops, shifting a large quantity of the population to wage laborers. This trend was largely driven during the Somoza era by Nicaragua’s capitalization on the international growth of the cotton market in the 1950s. By 1960, 39% of foreign income was earned solely by cotton as opposed to 35% by coffee. 58 Between the two crops, an estimated 87% of the workforce was employed during harvest times.59 With such economic importance, the percentage change in the area of cotton planted increased five fold higher than coffee by 1965.60 Cotton cultivation followed similar growth patterns as coffee, except small farmers participation was limited by the capitalist nature of the Pacific coast. The expansion of agro-export production was limited mostly to the Pacific coastal region, land traditionally used for basic grain production, for its high fertility and 57 58 Gibson, “Overview ,” 30. Pedro Belli, “An Inquiry Concerning the Growth of Cotton Farming in Nicaragua,” Ph.D. dissertation University California. Seen in Enríquez, Harvesting Change, 74-77. 59 MIDINRA, Informe de Nicaragua a la FAO (Managua: CIERA, 1983), 53 and INCAE, Nicaragua: Estudio de la situación del empleo, la Absorción de la Mano de Obra y Otros Aspectos en Fincas y Productores de Café y Algodón (IDRC Rural Employment Project, INCAE, July 1982), 9. Seen in Enríquez, Harvesting Change, 74-77. 60 The area planted with cotton rose from 23,945 manzanas in 1950/51, to 66,767 manzanas in 1951/52, to 123,616 manzanas in 1954/55. CONAL, Estaditícas del Algadón in Nicaragua: 1950-1972 (Managua, CONAL, 1973). Seen in Enríquez, Harvesting Change, 34. 26-Jan-04 29 Food Insecurity in Nicaragua The History of Food Insecurity accessibility. Basic grain production was then pushed to the fringes of the agricultural frontier in the underdeveloped central and Atlantic coastal regions, as seen in Figure 3. The relationship between agro-export harvests and basic grain harvests can bee seen in Figure 4. Figure 3: Macroregions of Nicargua (Figure removed for ILASSA publication) Source: FIDA, Informe de la Misión Especial de Programación a Nicaragua (Rome: FIDA, 1980), vi. Seen in Enríquez, Harvesting Change, 27. Figure 4: Percentage of Area Harvested (Figure replaced with table data for ILASSA publication) Agroexport Crops Cotton Coffee Mz. % Mz. 82 16 118 107 19 123 134 23 128 165 26 119 191 27 126 203 27 129 215 28 129 209 25 130 188 23 126 155 23 124 136 19 120 156 21 118 211 29 119 259 32 119 254 27 119 205 26 120 283 31 120 303 34 120 248 27 135 64 10 140 Basic Grains % 24 22 22 19 18 17 17 15 16 18 17 16 17 15 13 15 13 13 15 22 Rice Mz. 31 34 32 31 32 33 33 34 34 37 48 48 43 36 47 42 30 35 39 51 % 6 6 6 5 5 5 4 4 4 5 7 7 6 4 5 5 3 4 4 8 Beans Mz. 54 66 61 61 67 75 80 83 85 58 67 70 57 67 93 80 97 88 95 76 % 11 12 10 9 10 10 10 10 10 9 9 10 8 8 10 10 11 10 11 12 Crop Year 1960/61 1961/62 1962/63 1963/64 1964/65 1965/66 1966/67 1967/68 1968/69 1969/70 1970/71 1971/72 1972/73 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 26-Jan-04 30 Food Insecurity in Nicaragua The History of Food Insecurity Sources: 1960/61-1978/79: BCN, Indicador Economícos, 74-84; 1979/80: MIDINRA, unpublished data (March, 1989). Seen in Enríquez, Harvesting Change, 75. At the same time, government financed increased inputs like tractors, fertilizer, pesticides, and ample credit facility through multinational lenders.61 Ironically, these same lenders’ interest later shifted to political and economic disinterest, and even sabotage, during the Sandinista era. To achieve comparative advantage and gain economies of scale in producing export crops, Somoza’s policies greatly limited the ability of Nicaragua’s subsistence farmers in the country’s fertile zones. The peasants in the fertile Pacific Plains and inland lost their land, and were pushed to the less fertile agricultural frontier and to the Atlantic coastal region. The growth of cotton during this time repeated the same pattern established by the rise of coffee, while the peasants along the Pacific Plains lost their ability to produce basic grains. 62 Meanwhile, the most fertile and most accessible land went to the largest producers whose crops were destined for foreign markets rather than for domestic consumption. With the rapid concentration of land holdings, the total area cultivated increased 162%, whereas number of farms increased 62%, between 1952 and 1978.63 This shows that the new land ownership legislation facilitated large commercial holdings at the disadvantage of small farmers. 64 According to the 61 In 1960, 89% of the area harvested for cotton received bank credit, which financed 70 to 80 percent of cotton production costs per manazana. Calculated from BCN. 62 Evidence of this process is illustrated in Enríquez, Harvesting Change. 63 Barraclough , A Preliminary Analysis, 52. 64 Farms with 500 manzanas or more increased from 40% to 48% in between 1952 to 1978. Ibid. 26-Jan-04 31 Food Insecurity in Nicaragua The History of Food Insecurity agriculture census of 1963, Table 2, medium and large producers controlled 89% of the year’s cotton acreage, which increased to 91% in 1971.65 Table 2: Land Distribution According to Size of Finca, 1963 Size Groupsa Microfincas Subfamily Family Medium Multifamily Farm Size (Manzanas) Less than 1 1- 5 5- 10 10- 20 20- 50 50- 100 100- 500 500- 1,00 1000- 2,500 More than 2,500 Percent of Farms 2.2 33.2 15.4 13.0 14.4 10.7 9.6 1.0 0.4 0.1 100.0 Percent of Area 1.5 1.9 3.2 8.1 12.4 31.7 10.7 10.3 20.2 100.0 Source: Enríquez, Harvesting Change, 37. aThe various size groups are defined as follows: Family: A farmer that has enough land to maintain a family using the predominant level of technology. Sub family: A farm that does not have sufficient acreage to satisfy the basic necessities of a family or employ all the family members through out the years. Medium: A farm with enough acreage to employ others in addition to family members but does not involve a complex division of labor. Multifamily: A farm that is large enough to employ a permanent work force in addition to family members and that has a hierarchical division of labor. (Note: This definition comes from the Comité Interamericano de Desarrollo Agricola, as cited in CEPAL et al, Tenecia de la Tierra y Desarrollo Rural en Centroamérica (San José, Costa Rica: EDUCA, 1980), 48.) 65 Ibid. 26-Jan-04 32 Food Insecurity in Nicaragua The History of Food Insecurity Peasants were displaced not only by the means of inadequate land title documentation, but also by the force of Somoza’s national guard and local police.66 Were Nicaragua an orthodox export-based economy, the displaced population would be employed by the industrial sector. However, Nicaragua did not have such industrial development to facilitate the population. As in Zelaya’s time, the peasants’ primary options were to join the seasonal labor force or relocate to the agricultural frontier and farm without any established protections or government support, such as credit, technical assistance, fertilizer, or marketing facilities. 67 Neither option provided a means of economic success, so unemployment increased, food production decreased, and the rural population went impoverished and malnourished by the lack of livable wages. Naturally this population was living under poverty, with scarce food, and acute malnutrition. A full 50% of the rural population lived in extreme poverty by the 1980s, and equal number of which live below the poverty line today.68 Life’s other essential needs like health and education were unattainable for most of the population. The income inequality between the seasonal labor class and the landowning class polarized the social structure. Economic power was concentrated in the hands of a very select few, leaving the agricultural wage labor class dependent on their mercy. 66 67 Gibson, “Overview,” 20. Although coffee and cotton employed a large percentage of the labor force, 70% of the agriculture labor worked on a temporary basis with only 30% employed permanently. Enríquez, Harvesting Change, 59-61. 68 Ibid. 26-Jan-04 33 Food Insecurity in Nicaragua The History of Food Insecurity Furthermore, the foreign earnings gained from the agricultural exports were not even reinvested domestically for the country’s development. Profits were redistributed back to the agro-export producers as subsidies and incentives. Huge investment and credit opportunities expanded mechanized export crop production, increasing productivity while lowering unit cost. Figure 5 shows how tractorization of pre-harvesting69 activity transformed the previously laborintensive cotton and coffee production into a capital-intensive sector. Figure 5: Employment in Cotton Production, Permanent and Temporary, 1960/61-1978/79 (Figure replaced with table data for ILASSA publication) Crop Year 1960/61 1961/62 1962/63 1963/64 1964/65 1965/66 1966/67 1967/68 1968/69 1969/70 1970/71 1971/72 1972/73 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 Permanent 4075 5366 6710 8240 9566 10140 10767 12546 11264 9303 8177 9365 21091 25935 20350 14322 16980 18651 14890 Temporary 44820 64389 80515 98879 114797 121685 129208 135914 122037 100783 88586 101451 158185 202295 180602 157543 198104 192725 158832 Total Percent Temporary 48895 92% 69755 92% 87225 92% 107119 92% 124363 92% 131825 92% 139975 92% 148460 92% 133301 92% 110086 92% 96763 92% 110816 92% 179276 88% 228230 89% 200952 90% 171865 92% 215084 92% 211376 91% 173722 91% Source: Adapted from Biderman, “Class Structure,” 180. Seen in and adapted from Enríquez, Harvesting Change, 69. 69 Pre-harvest cotton operations, include plowing, planting, and pesticide application. 26-Jan-04 34 Food Insecurity in Nicaragua The History of Food Insecurity Since the majority of the labor force worked in cotton and coffee production, harvesting labor needs grew at a decreasing rate as plantation acreage increased; growth in labor outpaced demand. For example, cotton growers retained only an indispensable number of permanent workers, making the rest of the labor a variable cost.70 As a result, employers minimized labor wages, which kept production costs down and increased competitiveness in the international market. While the wealthy export crop producers grew wealthier, the poor fell deeper into poverty. Impact of the Somoza Model: Although Nicaragua’s growth rate was steady from 1950 to 1970, the nation’s success was based primarily on the financial success of a few elite agricultural exporters. The high growth rate of the export agriculture was the direct product of policies that allocated best land to the export crop production at the expense of food production. The process marginalized a large percentage of the rural population, who were left to eke a sustainable livelihood without land, permanent employment, nor any other government facilities. Under such economic conditions, observe in Table 3 below the high responsiveness of food consumption to income. Table 3: Distribution of Income in 1977 and Caloric Intake in 1970 Percentage of EAP Top 5 15 30 70 Percentage of Income 28 32 25 Income Per Capitaa 5,409 2,062 805 Caloriesb 3931.2 3255.1 2703.5 Protein 111.9 90.3 72.5 Fat 114.7 77.9 54.2 Biderman, “Class Structure,” 92. Seen in Enríquez, Harvesting Change, 68. 26-Jan-04 35 Food Insecurity in Nicaragua The History of Food Insecurity Bottom Total 50 100 15 100 289 966 1767.2 46.5 31.7 Source: Data for 1977: Fondo Internacional de Desarrollo Agricola, Informe de la Misión Especial de Programación a Nicaragua (Managua: FIDA, October, 1980), 54; for 1970, CIERA, Informe de Nicaragua a la FAO (Managua: CIERA, 1983), 41. Seen in Gibson, “Overview,” 31. a U.S. dollars. b Grams per capita. As Table 3 shows, the very rich, top 5% of the population captured 28% of total income compare to the bottom 50% of the population, who captured only 15%. Of those, the bottom 50% of the population did not even consume 45% of the calories consumed by the top 5% of the population – a level well below the recommended daily caloric intake. In 1977, 50% of population suffered from inadequate food intake. Even though agricultural output rose at a rapid rate from 1965 to 1975, malnutrition doubled, affecting 60% of children under 4 years of age.71 According to a World Bank report, two thirds of Nicaragua’s population did not consume meat or fish of any kind, even though Nicaragua was the major supplier of calories and protein in the Latin America.72 Half the population did not drink milk and 57% did not eat vegetables.73 Only 20% of the population had access to health care, and the death rate from contagious diseases was highest in the Latin America.74 It remains that approximately half the population of Nicaragua lived in a state of absolute poverty as a product of poor distribution of wealth, inadequate 71 72 CEPAL, 1980 Informe Sobre Nicaragua (Nicaragua: CEPAL, 1980), 6. World Bank, The Challenge, 32. 73 Ibid. 74 Ibid. 26-Jan-04 36 Food Insecurity in Nicaragua The History of Food Insecurity food supply, malnutrition, disease, illiteracy, low life expectancy, and high infant mortality. This absolute poverty prevented economic progress amongst the rural population that took place elsewhere in Nicaraguan society. They have remained largely outside the entire development effort, able neither to contribute much to it, nor to benefit fairly form it.75 Somoza’s “comparative advantage” meant specialization in the agricultural exports at the expense at the expense of food crop production, and all its associated ailments. According Gibson, domestic agriculture was stagnant from serving international market demand for agro-exports. Favorable exchange rate policies, tariffs, and terms of trade for agro-exports encouraged the reallocation of land away from food crop production. Meanwhile, small food producers were systematically denied access to state resources like agricultural credit, inputs and technical assistance. The effect of relying so extensively on the international market is a twofold vulnerability to the global market and food insecurity.76 Foreign earnings were used to import “cheap” food, keeping food crop prices down, and wages low, ensuring high seasonal workforce for agro-export production. As the Somoza economy became more export intensive, growth in the economy was dependent on the expansion and earning of a few crops, driving peasants off their land. Eventually, per capita income plummeted, and the skewed income 75 76 World Bank, “Poverty and Basic Needs,” (1980). Since Nicaragua is a price taker not a price setter, the international price dictates the supply of Nicaraguan products in the international market. Also, Nicaragua is primary product producer, which is vulnerable by nature because substitute products take away the market share of primary products. For example, the cotton market slowed down after the invention on artificial thread. Later in this section is a detailed discussion of the vulnerable nature of Nicaragua’s economy. 26-Jan-04 37 Food Insecurity in Nicaragua The History of Food Insecurity distribution facilitated the Sandinista group’s (FSLN) revolutionary take over in 1979. Sandinista’s Dream of Food Security (1979-1990) Agrarian reform a pivotal issue for the revolutionary government; was also a difficult one because of the numerous contradictory needs and interests involved.77 The Sandinista agrarian reform policy of 1989 centered on food security, with specific goals of self-sufficiency in basic grain production by 1990 and other dietary components by 2000.78 The Sandinista government failed to meet these goals, primarily because the government’s ideologies and policies were incompatible with the export-oriented structure of the agricultural sector supply system.79 To further complicate the issue, the government was challenged by anti-Sandinista forces, such as the bourgeoisies and US backed guerrilla forces. These groups’ actions included the sabotage of nascent rural initiatives and an economic blockade by the US government. 80 The Sandinista government struggled to meet its key objectives: mending deep-rooted social inequalities and raising the standard of living for the rural 77 Biondi-Morra, Hungry Dreams; Enríquez, Harvesting Change and Agrarian Reform and Class Consciousness in Nicaragua (Gainsville, Fl.: University Press of Florida, 1997); Peter Utting, "Domestic Supply and Food Shortages", Political Economy of Revolutionary Nicaragua, ed. Rose. J. Spalding (Boston: Allen & Unwin, 1987), 140. 78 Biondi-Morra, Hungry Dreams, 32. 79 Peter Utting, "Domestic Supply.” 80 Ibid. 26-Jan-04 38 Food Insecurity in Nicaragua The History of Food Insecurity population.81 In practice, this would have meant agrarian reform to increase the domestic supply of food, creating a food surplus, which could have contributed to rural household incomes. Simultaneously, the Sandinista government had to focus on post war inflation and bankruptcy, taking scarce administrative expertise out of the tasks of restructuring agriculture. For the first time in Nicaragua’s history, the government was committed providing the basic needs of the people. In this section, we will examine the Sandinista period from 1979 to 1989 to understand how government policy failed to achieve food security. Specifically, we will analyze the policy dilemmas and economic conditions the Sandinista government faced that encumbered the process of increasing domestic food grain supply and guaranteeing adequate food consumption. Overview of The Economy After the revolution of 1978-1979, the Sandinista government took basic steps to reestablish national control over the economy, which was lost during the Somoza dictatorship82. Immediately, the banking system was nationalized and the Nicaraguan Agrarian Reform Institute (INRA) was established to develop state farms. Later, an emerging trade gap created by the US 1981 trade embargo led to strict control over foreign exchange, with foreign exchange rationing and 81 One half of Nicaragua’s population lived in the countryside and about the same population worked on the agriculture sector. Also agriculture accounted two third of country’s foreign exchange earning and quarter of the GNP. Deere, Marchetti, Reinhardt, “The Peasantry.” 82 Gibson, “Overview.” 26-Jan-04 39 Food Insecurity in Nicaragua The History of Food Insecurity multiplied exchange rate, by the Ministry of Foreign Trade export/import controls in effect. The state also established a minimum wage, a scale of wages and salaries, promoted labor unions and collective bargaining agreements and under temporary emergency laws, prohibited strikes.83 All of these were attempts to redistribute national income, to raise the standard of living by giving the labor force more power, and to stimulate domestic food crop production. Later, we will see that these policies didn’t bring a sustainable food system. The reason behind this failure is controversial. According the World Bank and the International Monetary Fund (IMF), hyperinflation and high debt-burden were the key reasons. Enríquez attributes the Sandinista government’s lack of expertise to control such huge state endeavor.84 Meanwhile Vos and Johnson say that shifting patterns in aid after the US embargo and sabotage made the economy vulnerable, which caused the Sandinistas’ failure.85 While the reasons behind the Sandinistas’ failure are debatable, the failure itself is not. Nicaragua’s heavily-centralized control of economic planning was necessary but the absence of skilled civil servants to administer such a task a war torn physical infrastructure, low national savings and dependency on foreign aid all contributed to the inability of this new government to reform the structure of the agrarian economy. Exacerbating these internal deficiencies were the US 83 From August 1979 to August 1980, 200 collective bargaining agreements were signed, covering 50,000 employees. During the 46 years Somoza ruled, only 46 such agreements were signed. For further discussion see Carols M. Vilas, Perfilies de la Revolucion Sandinista (Havana: Casa de las Americas, 1984) and David F. Ruccio “The State and Planning Nicaragua,” The Political Economy of Revolutionary Nicaragua, ed. Rose J. Spalding (Boston, MA: Allen & Unwin). 84 Enríquez, Harvesting Change. 85 Vos and Johansson , “Nicaragua.” 26-Jan-04 40 Food Insecurity in Nicaragua The History of Food Insecurity trade barriers, decreasing multinational financing, impact of the oil shock on the world market, and low market prices for Nicaragua export products. The gravity of the declining economy during the Sandinista time can be seen the per capita RGDP shown in Figure 6. Figure 6: Per Capita RGDP 1977-1993 (Figure replaced with table data for ILASSA publication) Year Per Capita RGDP 1977 11,039.32 1978 9,861.21 1979 7,027.64 1980 7,125.81 1981 7,282.19 1982 7,005.32 1983 7,108.10 Source: Calculated from RDGP and Population, BCN. By the end of 1980, the state controlled 18% of total agricultural production, 30% of manufacturing, 44% of services, and 100% of banking and insurance. In all, little more than one third of the country’s GDP was earned under state control. Also, the state became involved with wide range of activities like storing, transportation, and distribution of domestic products, e.g. through the Nicaraguan Enterprise for Basic Food Products, ENABAS. The government’s lack of administrative management skill, contributed to the stagnation in the economy. Ironically, successful revolutionaries don’t always make good administrators.86 86 Enríquez, Agrarian Reform. 26-Jan-04 41 Food Insecurity in Nicaragua The History of Food Insecurity Furthermore, the centralization of economic planning and market controls were seen by the US as evidence of communist influence. This fear evoked a negative reaction from the US government who was determined to maintain their sphere of political and economic influence. Since the Nicaraguan government was using short-term, annual plans like Cuba the after revolution, and a heavily centralized economic system, the United States feared a communist relationship with Cuba.87 In response, the US undertook trade embargo and sabotage to block multilateral foreign assistance to Nicaragua, readily destabilizing the economy.88 With instability in the economy, Nicaragua was vulnerable to influences from the foreign sector, increasing trade deficit, accepting unavoidable, unfavorable foreign aid policy through the socialist bloc, and uncontrollable increased social expenditure89. The cumulative 1980-1984 trade deficit was more than $2 billion dollars, which was equivalent to the GDP. Notice in Figure 7 how trade declined after1980.90 Figure 7: Trade Deficit (Figure removed for ILASSA publication) Source: Francisco Mayora, “The Economic Trajectory of Nicaragua: 1980-84,” 47. Seen in Bill Gibson Overview of the Economy from Political Economy p. 35 87 For quick understanding see http://wwwsul.stanford.edu/depts/hasrg/german/exhibit/GDRposters/history.html 88 Claes Brundenius, "Industrial Development Strategies in Nicaragua," The Political Economy of Revolutionary Nicaragua, ed. Rose J. Spalding (Boston, MA: Allen & Unwin), 103. 89 Simultaneously increasing social spending 30% more than Somoza time. The government placed a very high priority on social expenditure: education and health services were provided free of charge. Education spending rose from 2.4 per cent of GDP in the late 1970s to 5 per cent in the 1980s, while health spending increased from 1.6 per cent of GDP to 5 per cent in the same period. However, spending declined in the late 1980s, due to the effects of the economic embargo and the war, the consequent decline in GDP, and constraints placed on the budget by over-expansion of the public sector. For more information, see Vos and Johansson “Nicaragua.” 90 Ibid. 26-Jan-04 42 Food Insecurity in Nicaragua The History of Food Insecurity Note: computed as a ratio of export to import prices both with base 1980=100 Figure 7 shows that years Nicaragua created an extensive dependency on trade, an inherently volatile situation. Much of the volatility came though an import dependency from interregional Central America Common Market (CACM), as shown in Table 4, and US trade. After OPEC, the CACM declined, cotton and coffee met low market prices. The US embargo destabilized the entire economy. Table 4: Intraregional Trade and Nicaragua’s Shares of Intraregional Trade, 1976-1982 Central American Intraregional Central American Trade as Intraregional Percentage of Trade Total Central (m. U.S. $) a American Trade 1264.0 1518.0 1747.3 1852.4 2367.1 1963.7 1595.1 20.0 17.9 20.2 18.8 21.8 19.7 18.4 Years 1976 1977 1978 1979 1980 1981 1982 Nicaragua's Share of Intraregional Exports 18.1 17.0 16.9 10.0 5.9 6.9 6.4 Nicaragua's Share of Intraregional Imports 23.0 22.5 15.7 11.7 28.2 24.0 22.2 a Exports (f.o.b.) and Imports (c.i.f.) Source: IMF, Direction of Trade Statistics - Yearbook 1983 (Washington, D.C.: IMF, 1983). Seen in Claes Brundenius, "Industrial Development Strategies in Nicaragua", The Political Economy of Revolutionary Nicaragua, ed. Rose Spalding (Winchester, MA: Allen & Unwin: 1987), 100. In the post revolution, Nicaragua experienced negative foreign inflows of capital. Therefore, the cost of restructuring the broken nation after the revolution was heavily dependent on multilateral aid and financial loans. USAID, World Bank, and IMF were the major lenders until, under US influence, these multilateral loans ceased. At the same time, coffee and cotton’s foreign earnings 26-Jan-04 43 Food Insecurity in Nicaragua The History of Food Insecurity were not very promising. Nicaragua had no other choice but to accept help from the socialist bloc (USSR, Germany, Bulgaria, Cuba).91 Figure 8 below reveals the change in aid from multilateral sources to socialist sources after the US imposed sanctions. Figure 8: Aid by Source (Figure replaced with table data for ILASSA publication) 1979 Credits* Multilateral Bilateral of which: Grants Multilateral Bilateral of which: Memo item: total in US$ millions Credits Grants * Concessional and non-concessional Source: Taylor et al., Nicaragua: The Transition from Economic Chaos toward Sustainable Growth, (Stockholm: SIDA, 1989), based on data supplied by Ministerio de Cooperación Externa (MCE), seen in and adapted from Vos and Johansson, “Nicaragua”, Aid and Macroeconomic Performance, ed. Howard White, (New York: St. Martin’s Press, 1998), 142. 78.4% 20.6% 5.4% 0.0% 10.5% 89.4% 35.6% 7.5% 1980 1981 1982 1983 1984 1985 1986 1987 Western Europe Socialist countries 32.5% 11.9% 18.8% 15.0% 0.0% 0.0% 0.0% 0.0% 67.5% 88.1% 81.3% 85.1% 100.0% 100.0% 100.0% 100.0% 12.0% 8.3% 7.8% 19.8% 5.3% 11.5% 12.9% 18.6% 19.3% 20.1% 45.1% 38.5% 78.5% 87.0% 72.5% 81.4% 16.9% 83.1% 11.6% 48.4% 12.0% 88.0% 14.3% 51.6% 14.7% 6.9% 12.2% 4.8% 85.3% 93.0% 87.7% 95.1% 15.2% 11.1% 14.6% 6.2% 63.2% 80.0% 72.1% 88.3% 10.4% 89.6% 10.6% 76.6% 16.8% 83.1% 31.7% 51.2% Western Europe Socialist countries 271.7 88.8 528.7 147.8 728.7 73.8 498.9 98.8 437.8 181.2 628.3 144.3 924.5 272.1 201.2 316.7 229.2 155.6 We see that multilateral aid decreased during the Sandinista government, with 70% of aid coming from the socialist bloc by 1984. However, the terms of trade from the new donor were not favorable to the recipient. Two thirds of the aid was source-tied with balance of payments support, i.e. use the funds to 91 Ibid. 26-Jan-04 44 Food Insecurity in Nicaragua The History of Food Insecurity purchase donor country’s fuel, machinery, or the aid would come in a direct commodity. What Nicaragua needed was currency to finance their budget deficit.92 Since the socialist aid was not resolving Nicaragua’s economic difficulties, the Sandinista government resorted to printing money. This created a critical financial situation. Domestic prices skyrocketed as hyperinflation struck: inflation reached 43,029 percent per annum in 1989. Orthodox adjustment programs were attempted in 1989 to restore the economy, but could not stop the inflationary spiral. Instead, these measures brought recession and collapse in the public sector. Hyperinflation completely devastated the economy, as Nicaragua entered into 1990.93 Agrarian reform The U.S Agency for International Development (USAID) stated in 1976 that “no formal national food and nutrition policy had been adopted by the government of Nicaragua nor has any multicultural policy or administration undertaken to confront the extensive malnutrition problem,” the effects of which are shown in Table 3.94 The Sandinista government sought to create an agrarian reform policy to eliminate persistent hunger, malnutrition, and income inequality in the rural population. 92 93 Ibid. Ibid. 94 George Pyner and Catherine Strachan, Nutrition Sector Assessment for Nicaragua (Managua: USAID, 1976), 60. 26-Jan-04 45 Food Insecurity in Nicaragua The History of Food Insecurity Achieving such an objective necessitated a sound food policy, programs to promote food security, and reliable income sources for the rural population. To this end, the Ministry of Agriculture and Land Reform (MIDINRA) conducted a comprehensive study on the existing food system, which yielded a strategy to address the problem.95 The MIDINRA study identified two basic goals critical for future development: 1- food security and 2- generating foreign exchange.96 These were not perceived as two separate goals; rather, they were interdependent, unifying objectives. The Sandinista strategy was to develop an economy where there was interplay between state and private property. In such a mixed economy, the broad goal of achieving food security incorporated the both export agriculture and domestic food production. The earnings from agro-exports were necessary to finance public expenditures and the enhance capacity to increase food production. This strategy required increases in food production and agro-exports. A fundamental step towards food security focused on ensuring economic and physical access to adequate food supplies.97 Economic access primarily meant improving consumers’ purchasing power. This goal was achieved by a combination of price controls on basic food, employment generation for the rural population, and consumption subsidies to resolve food consumption dilemma. Physical access followed economic access when the population gained actual 95 96 For further discussion see Biondi-Morra, Hungry Dreams, 30. Ibid. 97 Biondi-Morra, Hungry Dreams, 37. 26-Jan-04 46 Food Insecurity in Nicaragua The History of Food Insecurity access to food.98 On the supply side, this meant increased access to land, labor, credit, technical assistance, expanding distribution channels, price incentives, and adequate imports of food to meet the demand gap until domestic basic food production recovered. In order to bridge the gap between the supply and demand for food, the government restored a large quantity of basic food imports, particularly during the first two years after the revolution. Strict priority was given to basic food imports, accounted for 84% of total food imports in 1981, compared with 48% in 1978. Details of Nicaragua’s food imports can be seen in Table 5. Table 5: Evolution of Food Imports, 1978-1984 1978 Corn Rice Beans Eggs Chicken Plantain Potatos Cabbage Vegetable oil Oil Seeds Basic Food Imports Total Food Imports Total Imports Basic Food/Total Food Imports Basic Food/Total Imports Total Food/Total Imports 33 0 140 23 9 98 65 20 14 21 23.8 49.5 593.9 48.1 4.0 8.3 1980 100 100 100 100 100 100 100 100 100 100 88.4 125.0 887.2 70.7 10.0 14.1 1981 65 61 216 76 120 101 164 113 96 52 131.5 155.8 999.4 84.4 13.2 15.6 1982 47 0 18 44 10 34 38 4 76 94 64.8 84.1 775.5 77.1 8.4 10.8 1983 264 13 178 19 17 19 1 0 77 149 72.8 80.1 806.9 90.9 9.0 9.9 1984 34 48 88 23 0 12 12 0 55 128 76.2 91.5 826.2 83.3 9.2 11.1 Volume index: 1980=100 Millions of dollars Percentage Source: Ministry of Foreign Trade. 1985 98 Ibid. 26-Jan-04 47 Food Insecurity in Nicaragua The History of Food Insecurity By the mid-nineties it became apparent to the Sandinistas that agrarian policy was more complex than they originally assumed. In the first few years, the Sandinista government faced inexperienced government planners, administrative polarity, inadequate marketing expertise, and opposition from agro-export producers, all of this challenges were compounded by the US trade embargo, 80’s global recession, and the concomitant decrease in foreign earnings. For the simplicity, the following discussion concentrates on food policy practices. Food Policy Practice In 1979, the Nicaraguan Agrarian Reform law was enacted with the goal of balancing export crop production and basic food grain production. It implemented two programs. The first phase was the immediate confiscation and nationalization of Somoza’s estate to keep export agriculture intact and modernized. The second phase, which took place mid-1981, was the confiscation of idle and underused farms, which was later expanded to include the confiscation of land from those who had left the country.99 This law sought to reduce “archaic” forms of land tenure and affected land, credit, even labor distribution. Primary attention focused on land redistribution, which significantly tried to restore landless laborers and small farmers who had been disadvantaged by aggressive expansion of agro-export. The reform law also charged the Ministry of Agriculture to maintain the large, modernized export estate under the 99 Unused farms were defined as land where less than 75% of acreage was cultivated. Those who own fifty manzanas on the Pacific coast or one hundred manzana anywhere else and rented this land for labor could also be affected. Seen in Enríquez, Harvesting Change, 89. 26-Jan-04 48 Food Insecurity in Nicaragua The History of Food Insecurity nationalized sector. Additionally, small farmers were organized into cooperatives to provide them with the greatest benefit of land, credit, and labor.100 Land Land reform was one of the main areas of difficulty for the Sandinista government. Land distribution was the major issued pressed to the government by rural Nicaraguans, roughly half of who worked in the sector as only laborers. Similarly, pressure was exerted by traditional, privileged, large landowners whose lands were in jeopardy under the new land reform laws. Under the mixed economy, the Ministry of Agriculture’s agro-export operation constituted the better part of the area of the country101 and maintaining an efficient economy of scale was crucial for continued foreign exchange earnings.102 Much of this land was confiscated from Somoza and his associates under the Nicaraguan Agrarian Reform law was reorganized into state farms known as the Area of People’s Property (APP).103 Nevertheless, small farmers were guaranteed greater access to the land. This was accomplished through the confiscation of idle or underused lands that were then redistributed tot eh the peasants for domestic food production.104 Table 6: Changes in Land ownership, 1978-1988 Sector 100 101 1978 1981 1984 1988 Ibid. Enríquez, Harvesting Change, 88. 102 Wheelock, Entre la Crisis. Seen in Ibid. 103 Mainly export producers to maintain a sustainable agro-export production. Brockett, Land, Power, and Poverty, 161. 104 For in-depth discussion of the land redistribution policy, refer to Enríquez, Harvesting Change, 88-89. 26-Jan-04 49 Food Insecurity in Nicaragua The History of Food Insecurity Private Over 850 acres 86-850 acres 17-86 acres Under 17 acres Subtotal Credit and Service co-ops Production co-ops State farms Total a Remainder classified as abandoned 36.2 46.3 15.4 2.1 100 14.8 44.4 15.3 2.1 76.6 4.3 1.4 17.7 12.7 42.2 6.9 1.6 63.4 10 7.8 18.8 100 9.5 42 7.2 1.6 60.3 10 13.3 13.3 96.9a 100 100 Source: Nicaraguan Ministry of Agricultural Development and Agrarian Reform as collected by Spoor 1995:55, seen in Charles D. Brockett, Land, Power, and Poverty: Agrarian Transformation and Political Conflict in Central America, Second Edition, (Boulder, CO: Westview, 1998), 161. The Sandinista land redistribution was essential to accelerate cooperative efforts, though the process slow and cumbersome. By the 1984, three years after the legislation was enacted, only 31,000 families received access to land, representing only 9% of the total agriculture area, with the beneficiaries representing only 25% of the poor peasants and seasonal workers.105 Contrastingly, 75% of the poor farmers were brought under cooperatives initiatives.106 By 1982, a total of 2,849 cooperatives existed with 64,434 members. Accordingly, more of the land redistribution went to cooperatives than individual farmers so that they could obtain greater access to credit, technical assistance, commercializing produces. Since the small food producers were spread out geographically, the Sandinistas created cooperatives to maximize the 105 106 Utting, “Domestic Supply,” 132. Peter Marcheti, “Reforma Agraria y la Conversión Dificil: Reubicación de Recursos, Redistrubución de Poder y los Explotados del Campo en Chile y en Nicaragua,” Estudios Rurales Latinoamericanos 4 (Jan – Apr 1981), 58. Seen in Enríquez, Harveating Change, 89. 26-Jan-04 50 Food Insecurity in Nicaragua The History of Food Insecurity impact of government assistance, thereby increasing food production, and income equality. Credit The traditional credit program used during the Somoza era reinforced the status quo of unequal distribution and agro-export production priority.107 In that time, only 10% of agriculture credit went to the marginalized small landholders. Since small and medium sized producers were the basic grain producers, the discriminatory credit policy kept the basic grain production and productivity low. To bring equality and achieve self-sufficient food production, the Sandinistas devoted the newly nationalized banking system’s primary attention to facilitating adequate credit to stimulate productivity on the nation’s small farms. The government offered attractive incentives like credit and technical assistance to increase participation in the new agriculture production system. This met with great success and the allocation of credit to small farmers expanded tremendously. Small producers received some seven times more credit in 1980 then they did in 1978 and altogether one third of the small and medium sized farmers received credit from the government in 1980.108 Moreover, the amount of credit offered between 1979 and 1980 was five fold higher than during the Somoza era.109 Table 7 shows the distribution of credit among rural farmers. 107 108 Enríquez, Harvesting Change 94. Brockett, Land, Power, and Poverty, 163. 109 CIERA, 1984. Seen in Ibid. 26-Jan-04 51 Food Insecurity in Nicaragua The History of Food Insecurity Table 7: Distribution of New Credit by Size of Producer - Rural Credit Program Percentage of Clients who Began Receiving Credit After April 1980 65.5% 48.1% 33.8% 53.6% Size of Landholding 0-10 mz. 10-50 mz. 50-200 mz. Total Source: CIERA, Informe final: Impacto del Crédito Rural sobre el nivel de vida del capesinado (Managua: CIERA, 1982), 225. Seen in Enriquez and Spalding, "Banking Systems and Revolutionary Change", 115. As Table 7 shows, over 65% of small producers benefited from the credit program, most of who received credit for the first time in 1980. Accompanying the credit was technical assistance, which was most efficiently deployed to the cooperatives. This program was created to reinforce the growing movement of cooperatives and by 1983, 78% of the beneficiaries were members of cooperatives.110 The expansion of credit didn’t increase small producers’ productivity because the inexperienced facilitators planned the credit program poorly. For instance, many times the credit arrived after the harvesting season. In other cases, credit was distributed in areas so remote that the produce couldn’t deliver their produce to urban area. The credit program lacked efficient distribution mechanisms to realize the potential benefits of the program. 110 BND, Información General: Crédito Rural Comparativo 1978-1983 (Managua: BND, 1984). Seen in Laura J. Enríquez and Rose J. Spalding, “Banking and Revolutionary Change,” The Political Economy of Revolutionary Nicaragua, ed. Rose J. Spalding (Boston: Allen & Unwin, 1987), 115. 26-Jan-04 52 Food Insecurity in Nicaragua The History of Food Insecurity Sometimes, the credit was not use to increase basic grain production; rather, recipients used the credit to buy goods they had previously been unable to buy, despite the cooperatives facilitation of credit application. Consumption levels rose amongst the beneficiaries, as many small farmers considered it their due after so many years of exploitation111. Subsequently, repayment and production difficulties arose amongst those farmers, credit then functioned as a consumption subsidy, adding to the budget deficit as negative accounts, and contributing to Nicaragua’s growing inflation. Finally in 1981, the government restricted credit distribution among small producers when the outcome the recipients output was below expectations, even though from a consumption point of view, the food security problem decreased. With this change, the amount of acreage financed reduced by 40% in 1984.112 Redistribution Increased access to land, credit, technical support, and rent ceilings were all designed to encourage small farmers to produce basic grains. The government also implemented policies intended to improve the terms of trade between the countryside and the city, thereby encouraging production and facilitating improved consumption by the urban population.113 Empresa Nicaraguaense de Alimento Básicos (ENABAS), was established to facilitate distribution and 111 112 Ibid. Calculated from Banco Nacional the Desarrollo, “Información General, Crédito Rural, Comparativo 1978-83,” (Managua, 1984) Mimeographed. 113 Enríquez, Harvesting Change, 98. 26-Jan-04 53 Food Insecurity in Nicaragua The History of Food Insecurity marketing of various basic food. The main agenda was to offer better prices to the small farmer, and increase their standard of living.114 Another component of ENABAS guaranteed a subsistence quota for basic grain to urban consumer at a fixed price115 and provided subsidized basic crops to the rural population.116 Subsidies for this product reached 1,703 million cordobas, or 6.3% of government spending, by 1984, which were cut that same year under the pressure of the fiscal deficit. Moreover, the regional distribution system was subjected to bottleneck and delay, particularly in the interior region of the country where shortage frequently occurred due inadequate transportation. Another important constraint on domestic supply was that there was no regional reserve. Hence, delay in product distribution in the regions immediately reflected in consumption levels. Table 8 below shows that the average per capita consumption increased initially for first few years, 1980-1982. However, the foreign exchange crisis and the beginnings of the contra war initiated a drop in consumption seen in 1984. Table 8: Per Capita Consumption, 1972-1984 Pre Revolution Product Corn Beans Rice Flour Veg. Oil Lb. Lb. Lb. Lb. Lb. 1972-1975a 197 25.9 50.8 32.8 16 1976-1978a 181 39.7 40.3 31.4 17.1 Post Revolution 1980-1982a 174 46 65.1 39.9 23.7 1983 192 38.8 70.5 38.4 26.6 1984c 165 49.1 80.8 37.2 22.7 114 115 Ibid. In urban areas, each family member generally received 4 lbs of rice and sugar per month; the quota of other basic grains tended to oscillate. Vegetable oil, for example, varied between half liter to a liter per person, per month, depending on the total supply the state controlled at any given time. 116 Utting, “Domestic Supply,” 141. 26-Jan-04 54 Food Insecurity in Nicaragua The History of Food Insecurity Sugar Eggs Chicken Pork Beef Milkb Lb. Doz. Lb. Lb. Lb. Gal. 79.6 2.2 2.5 5.3 21.7 4.1 98.1 5 4.6 5.2 25.7 4.7 91.1 6.4 9 6.9 20.3 5.5 102 6.7 8.1 4.8 18.2 6.2 104 6.3 6.7 4.6 18.9 5.6 a Yearly average for the period. b Pasteurized milk only. c Preliminary figures. Source:CIERA. Seen in Peter Utting, "Domestic Supply,” 140. Instituto de Comercio Exterior y Interior (INCEI) and ENABAS worked together to encourage basic grain production by offering producers better prices by eliminating the middlemen, while INCEI also facilitated marketing. However, ENABAS was unable to meet its first year goal when it purchased only 12% of corn and 24% of beans at very low prices.117 Pricing was not the only problem; ENABAS’s infrastructure, particularly transportation and storage, was inadequate to accommodate scope of their endeavors. This deficiency impaired the state’s ability to compete with the private sector. At the same time, inflation was rising in leaps and bounds after 1981. Manufacturing goods became limited and consequently the price of consumer goods rose. Compounding the problems of inflation and the shortage of manufacturing capacity was the expanding contra war, as seen in Table 9. Table 9: Annual Percentage Increase in "General" and "Food, Beverages, and Tobacco" Price Index, 1981-1985a 1981 General price index 117 1982 22.2 1983 32.9 1984 50.2 1985a 184.8 23.3 CIERA, Informe del Primer Seminario sobre Estrategia Alimentaria (Managua: CIERA, June 1983), 23. Seen in Enríquez, Harvesting Change, 99. 26-Jan-04 55 Food Insecurity in Nicaragua The History of Food Insecurity Food, beverages, and tobacco products 25.9 23.9 45.1 58.6 204.7 a1985 figures correspond to first 6 months only. Source: National Institute of Statistics and Census. Seen in Utting, "Domestic Supply," 146. In all, the effect of the contra war on the Nicaraguan economy was devastating. Not only did resources vital for re-building the economy have to be directed towards the effort but the contra movement also sidetracked the limited administrative expertise. The contras strategically targeted agro-export producers, devastating the export crop production. Moreover, scores of soldiers joined the fight against the contras, seriously depleting the needed harvest workforce, compounding the issue even in areas not directly engaged in warfare. The economy collapsed, as did agricultural production, followed by the fall of the Sandinista government in 1989. 26-Jan-04 56 Food Insecurity in Nicaragua Food Security Under Structural Adjustment Food Security Under Structural Adjustment Nicaragua is a victim of the law of uneven development, described by Hymer as “the tendency of the system to produce poverty as well as wealth, underdevelopment as well as development.” Looking to the year 2000, Hymer saw a “regime of North Atlantic Multinational Corporations” that would “tend to centralize high-level decision-making occupations in a few key cities in the advanced countries, surrounded by a number of regional sub-capitals, and confine the rest of the world to lower level of activity and income.”118 Nicaragua was clearly confined to these lower levels, largely due to political economic conditions created by the United States, as described in the preceding chapter. The US intervention was a necessary precondition to implement the development agenda dominated by the so-called “Washington Consensus”, utilizing tenets of market liberalization, privatization, and restrictive macroeconomic policy.119 In 1990, Nicaragua embraced a structural adjustment program (SAP) that gives the nation less control over the policies it employs, as Nicaragua is compelled to comply with the conditions imposed by International Monetary Fund (IMF) and World Bank (WB) loans. IMF and WB currently play the role of policy makers for the nation, translating the objectives of donor nations like the 118 S. Hymer, “The multinational corporation and the law of uneven development,” Economics and World Order: From the 1970s to the 1990s, ed. J.N. Bhagwai (London: Macmillan, 1972), 114. Seen in Roger Sugden and James R. Wilson, “Economic Development in the Shadow of the Consensus: A Strategic decision-making Approach,” Contributions to Political Economy (New York: Academic Press, 2002), v21, 111. 119 Sugden and Wilson, “Economic Development,” 111. 26-Jan-04 57 Food Insecurity in Nicaragua Food Security Under Structural Adjustment US into actual policies, such as opening up new markets.120 Indeed ‘Washington Consensus’ is very much in force of SAP to justify uneven development though its free market prophesies. Further economic theories emphasized that underdevelopment is not a simply a consequence of the policy and practices internal to countries and regions themselves, rather, they are an integral part of the world capitalist system.121 Nicaragua is caught in the system, where international policy makers and economists focused primarily on export crop production, remarkably ignoring the traditional rural livelihood in domestic agricultural production, countries economy got stuck in a spiraling down loop. It is important to remember that SAP is based on a model of capitalism that is organized according to transnational capital. In this system, power is transferred from the ‘international elite’ to ‘national elite’ to design strategies to stimulate the economy. This approach focuses on the ‘elite’ interest – a development strategy that doesn’t incorporate broader national problems or their solutions. Clearly, this is the case in Nicaragua’s present socio-economic condition. This section analyzes SAP from the early 1990s and identifies pitfalls in the policies presently implemented. Specifically, Strength Growth and Poverty Reduction Strategy (SGPRS)122 that Nicaragua is implementing since 2001 120 121 Ibid. Ibid, 122. 122 World Bank, “Nicaragua Poverty Assessment: Challenges and Opportunities for Poverty Reduction,” (2001). 26-Jan-04 58 Food Insecurity in Nicaragua Food Security Under Structural Adjustment promise to eliminate poverty by 2015 with the financial leverage resulting from the Highly Indebted Poor Countries (HIPC) initiatives. Under HIPC, SGPRS is created by WB and with the help of national government.123 This paper pays particular attention to the food security subsections of the Poverty Reduction Strategy while discussing the present agrarian condition. Food security is a major component of this strategy because food security and poverty are so interrelated. Yet, the question remains, will this package really eliminate poverty and secure food for all by year the 2015 as targeted? To reveal some of the paradoxes of this new economic initiative, we will first identify some of the major economic conditions, internal or external, that have affected agriculture since 1990. Simultaneously, we consider the organization of different projects and programs dealing with food supply and demand outlined by the SAP. Considering that food security hasn’t improved over the last 10 years of IMF and WB controlling the core of Nicaragua’s economic system, we responded to such failure with alternative approaches to deal with food security as a key development issue. Our response is based on my interviews with the Ministry of Agriculture (MAGFOR), Ministry of Nutrition and Health and a number of NGOs and government project managers who are working on the food security issue. 123 Ibid. 26-Jan-04 59 Food Insecurity in Nicaragua Food Security Under Structural Adjustment Brief Theoretical Foundations of Structural Adjustment To facilitate our understanding, we examine the theoretical foundation of Structural Adjustment (SA). So what is SA? Structural Adjustment is deeply rooted with the conditional structural adjustment loans (SALs) utilized by the Washington Consensus. As Waden describes it, “The eruption of the Third World debt crisis in mid-1982, a grand opportunity was presented to further the Reaganite agenda of resubordinating the South via structural adjustment schemes.”124 The immediate objective was to rescue northern banks that had become overenthusiastic in the Third World after the downfall of Northern economy due to the Cold War.125 The strategy was to integrate southern countries into the North-dominated world economy to create a threshold for the northern product market. Indeed, under the Washington Consensus, the law of uneven development was very much in force, and countries that underwent of SAP, never realized sustainable growth.126 To accomplish the twin goals of rescuing northern banks and expanding northern product markets, the World Bank and the International Monetary Fund (IMF) championed the strategy of providing “standby loans” to Third World debtors with billions of dollars in quick-disbursing schemes with flexible or high fixed interest rates. For most of Central America, the interest rate was flexible, which greatly contributed to today’s spiral of debt and dependency. Later in the 124 Walden Bello, “Structural Adjustment Programs: "Success" For Whom?” Case Against the Global Economy: And for a Turn Toward the Local, ed. Jerry Mander and Edward Goldsmith (Sierra Club Books, 1997), http://www.converge.org.nz/pirm/structur.htm . 125 Walden Bello, Dark Victory: The United States, Structural Adjustment and Global Poverty (Food First, 1994). 126 Bello, Dark Victory. 26-Jan-04 60 Food Insecurity in Nicaragua Food Security Under Structural Adjustment chapter, Nicaragua’s SAPs true payoff of food insecurity will be revealed, which bottlenecked the economy’s growth and development. SAPs and SALs are interrelated. To receive SALs, the government had to agree to undergo a structural adjustment program. SAP’s important objective is to improve the structure of the economy in such a way that the price signal can ensure the efficient distribution of resources. In other words, under SA, market power and Adam Smith’s “invisible hand” determine the economy of scale through price signals from customer to producer, thus achieving comparative advantage.127 In general, this objective is true under perfect competition market situations where price signal depends on a correctly valued exchange rate, the absence of rent seeking mechanisms (for example oligarchy), low transaction costs (for example transportation), and flow of perfect information. The reality of SA is far from this ideal. The objective essentially insisted “debtor countries remove the government from the economy as the price of getting credit."128 Decentralizing the Latin American economy wasn’t the best solution to their defaulted debt payments to the northern banks after the economic shock of the 1970s and 1980s. Debtor countries had no choice but to capitulate to maintain compliance with the World Bank and its loans. Approval and loans were both essential a country’s eligibility for further financial assistance from multilateral/ bilateral institutions to continue to make interest payments to the private banks. 127 Richard Eberlin, “Comparative Advantage of Food Crops Under Structural Adjustment in Nicaragua,” Agrarian Policies in Central America, ed. Wim Pelupessy and Ruerd Ruben (New York: St. Martin’s Press, 2000). 128 John Sheahan, “Development Dichotomies and Economic Development Strategy,” in Simon Teitel, ed., Towards a New Development Strategy for Latin America (Washington DC: Inter-American Development Bank, 1992), 33. Seen in Bello, “Structural Adjustment.” 26-Jan-04 61 Food Insecurity in Nicaragua Food Security Under Structural Adjustment As one Treasury official involved in the debt negotiations with Mexico put it, "Only countries that commit to market-oriented economic reform will get the [World Bank's] help."129 To conduct a smooth and successful transition to decentralized marketoriented economies in the centralized Latin American economy, bilateral organizations (World Bank, International Monetary Fund, International Development Bank) prepared a guideline governments needed to abide by. The conditionality of debt relief programs requires countries to undergo economic structural adjustment, and although SAPs differ somewhat from country to country, they typically include: A shift from growing diverse food crops for domestic consumption to specializing in the production of cash crops or other commodities (like rubber, cotton, coffee, copper, tin etc.) for export; • • • Abolishing food and agricultural subsidies to reduce government expenditures; Deep cuts to social programs, usually in the areas of health, education, and housing, and massive layoffs in the civil service; • Currency devaluation measures which increase import costs while reducing the value of domestically produced goods; • Liberalization of trade and investment and high interest rates to attract foreign investment; • Privatization of government-held enterprises.130 129 Miller, 1991. Seen in Bello, “Structural Adjustment.” 26-Jan-04 62 Food Insecurity in Nicaragua Food Security Under Structural Adjustment Theses terms established the framework by which national macroeconomic decisions would be made. The prerequisite conditionality established eligibility for loans and provided a means of guaranteed payment for previously contracted loans.131 Unfortunately there is a “sharp disparity between the expected and the actual results of a structural adjustment program.132 As Walden Bello explains, “By 1992, it was clear that the South had been transformed: state participation in the economy had been drastically curtailed; government enterprises were passing into private hands in the name of efficiency; protectionist barriers were being radically reduced; and, through export-first policies, the internal economy was more tightly integrated into world markets.”133 For people in the more than 70 countries which have been subjected to 566 IMF and World Bank stabilization and “structural adjustment” programs (SAPs) in the last 14 years, all of them have faced poverty, high unemployment, increasing unemployment.134 130 The People’s Summit, “What are Structural Adjustment Programmes?” (http://www.chebucto.ns.ca/Current/P7/bwi/cccsap.html). 131 C. Krauss, Inside Central America (New York: Summit Books, 1992), 17-24; 32-43; 210-215; 221-223 and Henry Kissenger, Report of the National Bipartisan Commission on Central America (Washington, D.C.: U.S. Goverment Printing Office, 1984), Chapter 1. Seen in Giovanni Reyes, “Major Theoretical Foundations of Economic Adjustment in Latin America,” Sincronía (http://fuentes.csh.udg.mx/CUCSH/Sincronia/reyes6.htm, 2002). 132 Bello, “Structural Adjustment.” 133 Bello Walden, “The Future of Global Economic Governance,” On the Threshold: The United Nations and Global Governance in the New Millennium, (United Nations University conference, January), http://www.unu.edu/millennium/bello.pdf , 10. 134 Bello, Dark Victory. 26-Jan-04 63 Food Insecurity in Nicaragua Food Security Under Structural Adjustment Necessity of Structural Adjustment in Nicaragua There is a contradiction in neoclassical stabilization policy makers’ perspective regarding the solution to indebted, poor economies and social policy analysis.135 Economist Lance Taylor and his associates agree that the World Bank and IMF misdiagnosed the problem of Latin American economies “import substitution” using the Bank’s own data.136 The main barrier in the pre-SAL period was not that the Latin American economy was not integrated with the world economy, as the IMF and World Bank insisted, but that they were subjected to two great shocks – the OPEC oil price rise in the 1970s and the debt crisis in the 1982. Previously, Latin American countries enjoyed straight growth during the 1960s through early the 1970s by practicing import substitution strategy.137 After several decades of impressive economic growth, the OPEC crisis hit the oil importing Latin American (LA) countries. Then with the influx of funds from the oil-producing countries, the multilateral lending agencies stepped in to resolve the problems of mounting oil bills and deepening foreign debt caused by the new, massive oil shock.138 In addition to that, multilateral agencies identified that since LA’s economic model in the mid 1900s was following import substitution (IS), 135 136 This is very apparent in the criticisms on free trade and SAPs. L. Taylor, "The World Development Report 1991: A Critical Assessment," in United Nations Conference on Trade and Development, International Monetary and Financial Issues for the 1990s (Vol. I), (New York: United Nations, 1991). 137 Import substitution policies were simply those that emphasized local production for local consumption, thereby promoting diverse production and national self-sufficiency, especially in the area of primary good and services. This was the common practice in Latin America from 1960-1973. 138 Laura Enríquez, “The Varying Impact of Structural Adjustment on Nicaragua’s Small Farmers,” European Review of Latin American and Caribbean Studies (2000), 69. 26-Jan-04 64 Food Insecurity in Nicaragua Food Security Under Structural Adjustment this was deteriorating the trade in the international, integrated economy, which contributed to the crisis.139 During that time, Nicaragua was a victim of mushroomed foreign debt and a run-away inflation rate that had accumulated since 1973. However, the failure of the Nicaraguan economy started even before the oil shock. Oligarchic social structure concentrated on agro-exports, political economic factors, and US intervention in Sandanistas’ era 1980s resulted in hyperinflation and high debt. The mounting inflation rate brought the biggest economic shock in 1989 when an economic austerity plan introduced in 1988 couldn’t control the inflation phenomena, which devastated the economy.140 During this economic crisis, the nation faced massive capital flight and a huge budget deficit. Clearly, trade deficit was the main influence in the imbalance. With the drying up of concessionary aid for reconstruction, risky economic conditions, it became increasingly difficult to finance the deficit on ‘soft’ terms and recourse to commercial borrowing, driving up the interest.141 The time was ripe for SA. In 1990, with the induction of Chamorro government, the US uplifted their embargo and Nicaragua embraced orthodox SAP. Following the path of SAP, Nicaragua government’s policies and budget implemented all the conditionalities to restore ‘market efficiency’. This transformation involved the full elimination 139 140 Ibid. Ibid. 141 George Irvin, “Nicaragua: Establishing the State as the Center of Accumulation,” Journal of Economics (1983). 26-Jan-04 65 Food Insecurity in Nicaragua Food Security Under Structural Adjustment of price controls, trade liberalization, financial sector reform, and privatization.142 Further restrictions were brought to Nicaragua under different loan packages. Some of the limitations brought since the 1993 negotiation include massive cuts in public spending, pegging exchange rate to the US dollar, and significant reduction in credit facilities. Instead of describing SAP in Nicaragua in its entirety, what follows is a discussion of the direct changes in the agricultural sector due to SAP and its impact on food security. For the purpose of discussion, emphasis is placed on particularly small producers, as they are the main domestic food producers.143 Agriculture under Structural Adjustment: Agriculture played a significant role in the Nicaraguan economy for at least 300 to 400 years. The sector accounts for 24% of GDP and employs almost 47% of the employed population.144 In particular, the rural poor populations, which account for the majority of the population, derive most of their income from agriculture. Improving productivity in this sector is therefore considered integral to promoting economic growth and alleviating poverty in the country.145 We have already illustrated how each principal government promoted agro-export production as a means of economic development, such as coffee and 142 V. Corbo., M.Bruno, S fisher, R Laban, & P Rojas, “An Economic Assessment of Nicaragua,” (mimeo) (Stockholm: SIDA). 143 Enriquez, Harvesting Change. 144 Awudu Abdulai and Richard Eberlin, "Technical Efficiency During Economic Reform in Nicaragua: Evidence from Farm Household Survey Data," Economic Systems, Vol. 25 (2001). 145 Biondi-Morra, Hungry Dreams. 26-Jan-04 66 Food Insecurity in Nicaragua Food Security Under Structural Adjustment cotton, with very little importance placed on food crop production. Hence, the Sandinista government was compelled to implement a centrally planned economy with greater emphasis on the ignored food crop sector. However, we know the Sandinistas lost popular support after being labeled “communist” and enduring the US embargo. The newly elected government in 1990 began implementing SAP aimed at rectifying the economic disarray in the country.146 “But what exactly did the implementation of SA mean of agriculture production?”147 In conforming to the dictates of IMF, the World Bank, and the International Development Bank (IDB), as well as those of the US government, there was a major shift in the interest of government priorities, which significantly affected poor farmers. We will focus on four major micro-variables: land tenure, credit facility, technical assistance, and market – each inseparable from the agricultural sector. We will see under SAP cutbacks in government spending on the land tenure problem, drastic reduction in the credit system for small producers, elimination of technical assistance for small producers, and agrarian trade liberalization towards an open agriculture market. These effects made the small producers vulnerable and impeded food production. As a result, poor small farmers were pushed further into deep poverty. 146 147 Abdulai and .Eberlin, “Technical Efficiency.” Enríquez, “Varying Impact,” 4. 26-Jan-04 67 Food Insecurity in Nicaragua Food Security Under Structural Adjustment Land Tenure and Reform under SAP Nicaragua, like the rest of Latin American, experienced profound social and economic inequality, which repeatedly resulted in social unrest, violent conflict, and a push for state-led redistribution. As we noticed, the major land tenure problems happened over the last three decades, and resolution has yet to be reached. Political turmoil and confusion prevailed across the land.148 After the fall of Sandinista government, the new government transitioned back to a market economy. As such, the land redistributed to cooperatives and landless individuals or small farmers (about 40% of the all agricultural land), used to create economic equality and increase food production, were regarded as illegal. Those elite, influential land-holders who lost land during the Sandinista era, demanded compensation from the new government, incurring a substantial fiscal cost. The round of post-Sandinista land redistribution also created violent conflict among the rural population who lost their land under the reform law. Continuing the tumultuous land tenure situation, the National assembly passed a property stability law in 1995, which was subsequently reversed in 1996 by the new Aleman government.149 Such political turmoil and frequent policy reversal created legal confusion and land tenure insecurity. Even in 2001, Nicaragua couldn’t break free from the 148 Lee J. Alston, Gary D. Libecap, and Robert Schneider, "The Determinants and Impact of Property Rights: Land Titles on the Brazilian Frontier," Journal of Law, Economics, and Organization, 21(1) (1996) and Rasmus Heltberg, "Property Rights and Natural Resource Management in Developing Countries," Journal of Economic Surveys, 16(2) (2002). 149 Rikke J. Broegaard, Rasmus Heltberg, Nikolaj Malchow-Møller, "Property Rights and Land Tenure Security in Nicaragua," http://www.econ.ku.dk/heltberg/Papers/landtenureNicaragua.pdf (2002), 10. 26-Jan-04 68 Food Insecurity in Nicaragua Food Security Under Structural Adjustment long established trend of unequal land distribution. Despite gains in land access, only minor improvements were realized in social structure and poverty eradication. As shown in Figure 9, 1% of the population held 41% of the land in 1963, while holding only 22% of the land in 2001. However, the bottom 35% of the population gained only 0.5% over the same period, totaling 2% in 2001. While this is an improvement, there still exists a significant inequality in land distribution. Figure 9: Land Distribution, 1963-2001 (Figure replaced with table data for ILASSA publication) 1963 1.5% 41.0% 2001 2.0% 22.0% Bottom 35% of population Top 1% of population Source: INEC (June 2002). Even today, poor farmers’ lands are illegally confiscated by the rich. Government policy maker are still in crisis to address this critical issue. It is important to mention that even the poverty reduction strategy didn’t mention any solution to resolve the main economic capita crisis. So regarding how ever measure the nations undertakes to eliminate poverty if the basic structure of the ownership is not fixed every effort will be nothing but building a sand castle. After all a for a country like Nicaragua every wise investment of their debt relief money is important. 26-Jan-04 69 Food Insecurity in Nicaragua Food Security Under Structural Adjustment Credit Structure “As the government has revamped financial institutions and scaled down its economic intervention, it has largely left small farmers adrift in an alien market, some experts say. ‘The change that has had the greatest impact has been in credit,’ says Alfredo Ruiz, a research at NITLAPAN Institute at Managua’s Central American University. ‘The government has closed a lot of bank branches in poor rural areas, and raised loan requirements for the rest.’”150 David Dye, 1994 An unapparent influence to credit allocation is land documentation, such as titles, deeds, and land reform documents, which may or may not be registered in the relevant public register. This process is very expensive and complex in nature, so most of the poor farmers did not register their land. Under the newly privatized banking, SAP harshly restricted agriculture credit opportunities for small-scale farmers without land title, as fully formalized and registered land title is one of the major prerequisite for institutional credit.151 Table 10 and Table 11 show the discrepancy between funding for agroexports and basic grains, which is at least an order of magnitude different. Table 10 also demonstrates the elimination of cotton production as an export crop and the continued strength of coffee production as a dominant investment area. These figures account for changes effected by SAP in the early 1990s. SAP dictated 150 David R. Dye, “Nicaragua Government Promises to Help the ‘Forgotten’ Peasants”, The Christian Science Monitor, http://www.owlnet.rice.edu/~poli354/Nicaragua/940209_Nicaragua_poor.html (1994). 151 Jon Jonakin, “The Impact of Structural Adjustment and Property Rights Conflicts on Nicaragua Agrarian Reform Beneficiaries,” World Development, 24 (7) (1996). 26-Jan-04 70 Food Insecurity in Nicaragua Food Security Under Structural Adjustment lower agricultural credit lines, which dropped 51.5 percent from 1995/96 to 1991/92. Over the same time period, coffee production lost 43.7 percent of its former level, while corn and beans lost 94 and 93 percent of credit, respectively.152 Not surprisingly, small and medium producers lost 52 percent of their share of total credit in 1995/96 from 1991/92, while large producers gained 229 percent over the same period.153 Table 10: Agro-Exports: Area Harvested, Area Financed, and Cordoba Financed (Thousands of Manzanas), (Thousands of Cordoba) Agro-exports Coffee Year 1995/96 1996/97 1997/98 1998/99 1999/00a 2000/01b Harvested Financed 120.3 120.7 132.9 133.5 143.4 154.7 45.6 45.6 64.5 77.4 100.4 44.1 Cordoba 245237.8 199333.6 411648.1 950583.2 1439245.3 0.6 12.2 5.2 Cotton Harvested Financed Cordoba 12.8 4.7 3.6 35043.4 9048.8 3619.1 Harvested 64 71.4 74.6 76.4 79.8 73.2 Sugar Cane Financed 26.1 29.2 52.7 47.4 60.6 19.6 Cordoba 25839.3 33245.3 86496.2 157358.9 157768.2 a 1999/00 Cordoba estimated data. b Forcasted Data, 2000/01 Cordoba not available. Source: Harvested and Financed from INTA, Cordoba from INEC (2000). Table 11: Basic Grains: Area Harvested, Area Financed, and Cordoba Financed (Thousands of Manzanas), (Thousands of Cordoba) Basic Grains Rice Year 1995/96 1996/97 1997/98 1998/99 1999/00 a 2000/01 b 152 153 Beans Cordoba Harvested Financed 31777.8 30997.8 51387.8 68015.8 90295.8 197.8 171.3 192.9 270.5 195.6 290.9 2.6 0.2 1.4 0.1 832.7 89.8 1217.1 99.2 399.8 398.5